It isn't raining but pouring bad news at Ford Motor (F). The automaker's stock, which sold as high as 67 a share some 10 years ago, tumbled to a new low of 4.95 on Mar. 17, 2008. It has since inched up to 6.75 as of May 30, but that's still an awfully low price. At that price—less than the cost of two gallons of gasoline—Ford stock is a fire-sale bargain.
Don't take it from me. Listen to a person who knows the auto industry well: activist and veteran investor Kirk Kerkorian, who intends to buy more Ford shares to add to his current 4.62% stake in the company—at a higher price. And bear in mind, if the stock continues to wallow at this depressed level, expect at least one more activist investor to jump in, according to some Street sources.
One hedge fund manager, who declined to be named, makes this observation: "Ford is a natural target for the activist fund managers—it has a huge brand name known worldwide, in an industry that has been smacked down but whose prospects would be enormous once the U.S. economy recovers from its current malaise." This pro also points to new products in Ford's pipeline that should lift the company toward a recovery when they hit the market, and to "serious and determined" efforts by management to turn the ailing company around. The manager predicts that one or two other activist players are eyeballing the situation very closely and could pounce on the stock at any time.
Kerkorian to the Rescue
On Apr. 28 the second largest U.S. automaker surprised Wall Street by reporting a profit of $100 million for the first quarter of 2008, its first since the second quarter of 2007. The Street was expecting a loss, and the shock of a U.S. automaker posting a decent profit pushed up the stock to 8.21, from 7.50 the previous trading day. Heavier-than-anticipated cost-cutting, plus strong sales in South America and Europe that helped offset the weak performance in the U.S., enabled Ford to deliver the unexpected profits.
A month later, however, the upbeat mood in Dearborn, Mich., changed. Besieged by a drop in sales of trucks and SUVs caused by high fuel prices and the poor U.S. economy, the company conceded that it wouldn't be able to meet its goal of profitability in 2009 and at best would only manage to break even. It made new production cuts and proceeded to lay off more employees. Analysts quickly downgraded their ratings on the stock and cut their sales and earnings estimates. Predictably, the stock fell, and by May 30, it had dropped to 6.71.
That was when Kerkorian jumped in with an announcement that he would still honor his commitment to increase his stake, as planned, to buy 20 million more Ford shares at $8.50, a price he had agreed to when he had offered to buy more shares on May 8. He waived a condition in his tender offer that would have allowed him not to proceed with the purchase if the stock dropped 10% or more below the May 8 closing price of 8.20. Kerkorian, through his investment firm Tracinda said that he continues to believe in Ford's management and in its ability to turn the company around.
Beautiful Table Setting
Kerkorian has a colorful history of engagement with the auto industry. In the 1990s, he acquired a big stake in Chrysler, whose management he pressured to enhance shareholder value. His unrelenting efforts pushed Chrysler into a merger deal with Daimer-Benz (DAI). In 2005, his efforts to achieve the same goal at General Motors (GM) didn't quite succeed. He sought to effect a change in management and tried to push it toward restructuring the No. 1 automaker. Kerkorian gave up ultimately, but not before he had scored a decent profit on his 10% stake in GM.
And then he turned his attention and interest in Ford.