x Abu Dhabi, UAETuesday 25 July 2017

Ford fiasco signals end of Kerkorian's excursion to Detroit

Kirk Kerkorian's latest attempt to cruise into Motor City, on the back of a stake in Ford, has run out of gas.

Not so long ago Kirk Kerkorian was regarded as one of the few potential saviours of Detroit's car manufacturers. But his latest attempt to cruise into Motor City, on the back of a stake in Ford, has run out of gas. He has already sold some of the ailing motor manufacturer's stock, may dump it all and is currently sitting on a US$650 million (Dh2,387bn) paper loss. The investment looked risky enough right after he started to buy in April: the worsening economy, tighter credit and rising petrol prices led Ford to abandon hopes of breaking even by next year.

Nonetheless, Mr Kerkorian kept snaffling up stock, offering $8.50-a-share, almost a third above the price at the time, in a tender offer for 20m shares. The deal was more than 40 times oversubscribed. Ford's stock has since plummeted by 60 per cent or more. But Mr Kerkorian compounded matters by pledging plunging MGM stock as collateral against his credit line to buy Ford shares, thus putting him in danger of falling victim to what might as well be known as oligarch disease.

The Russian billionaires, Alisher Usmanov and Oleg Deripaska, both recently faced margin calls on some of their investments. Mr Deripaska had to surrender his 25 per cent stake in Magna, the Canadian car-parts supplier that along with Mr Kerkorian mulled bidding for Chrysler last year. In fact, only last week Mr Kerkorian's investment vehicle, Tracinda, handed over another 50m shares in MGM as collateral to Bank of America. The entertainment group's stock had plunged almost 75 per cent in six months, valuing the initial block Tracinda pledged for his Ford credit line at just $700m, almost a third below the blended cost the nonagenarian had paid to amass a 6.5 per cent stake in Ford between April and July.

Granted, the combined 100m of MGM stock easily covers Mr Kerkorian's outlay and there is no indication Bank of America was pushing for more. But after driving away from General Motors in 2006 with a $100m profit and then managing by luck or judgment not to win the Chrysler auction, Mr Kerkorian's Ford fiasco marks an ignominious end to his dabbling in Detroit. *The National