Ford Motor Co. (NYSE: F) is cutting production at its Volvo unit, according to The Wall Street Journal. The move, which could affect one-third of workers -- some 700 -- is seen as an attempt to cut the costs and losses at the upscale Swedish brand.
The question everyone is asking is whether this move is done in preparation for a sale. According to "people familiar with the matter" who discussed such things with the Journal, CEO Alan Mulally is interested in putting Volvo, whose sales have been declining, on the block. Of course, to analysts, Mulally sang a different tune last month, saying the priority is improve the Swedish auto maker operations "dramatically."
As Kirk Kerkorian's Tracinda Corp. continues to build its stake int he company, he may also have a thing or two to say on the matter.
For now, Volvo is cutting where it makes larger, less popular vehicles, and it plans to make fewer cars overall. But can this make Volvo more profitable to Ford, or at least more attractive to buyers? There are costs associated with producing a smaller number of vehicles, but with Volvo reporting 22,000 fewer vehicles sold during the first quarter, cutting production makes sense. Another matter Ford has to consider is the massive losses it suffered lately just from the kronor-dollar exchange rate.
It was nearly a year ago that speculation ran amok that German carmaker BMW could be interested in buying Volvo. Could it still be interested? Years back, Renault was interested too. With the credit crunch still crimping deals, and with some major players like private equity -- keeping in mind Chrysler's sale to Cerberus -- absent, it's likely such a sale could be postponed.
After selling its Land Rover and Jaguar units to India's Tata Motors Ltd. (NYSE: TTM) in a deal worth $2.3 billion, and Aston Martin for $848 million to investors led by David Richards, if Ford sells Volvo, it will be left only with Lincoln as its luxury line.
General Motors (NYSE: GM) is recently up 54 cents to $21.15 on unconfirmed chatter Kirk Kerkorian's Tracinda has taken a position in GM.
GM call option volume of 17,266 contracts compares to put volume of 11,950 contracts. GM April 22.5 straddle is priced at $2.53, May is at $4.51. GM May option implied volatility of 73 is above its 26-week average of 53 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Delta Petroleum Corp. (NASDAQ: DPTR) has announced that Kirk Kerkorian's Tracinda Corp. has completed the due diligence process for its strategic investment in Delta. Tracinda has now waived its due diligence condition and it will now proceed with its planned investment into Delta Petroleum.
Tracinda previously agreed to purchase 36 million shares of Delta Petroleum's common stock for $684 million. This generates roughly a $19.00 per share investment, while shares closed out yesterday with a $20.79 level and the 52-week trading range is $13.06 to $24.94. Its market cap based on yesterday's close is $1.38 billion.
Earlier this week, DP gave an update on its reserves and production guidance, so Kerkorian must still be in the camp that this is a win-win. The company has a special meeting of shareholders on February 19, 2008 to vote on this investment.
Jon Ogg is an editor and partner of 247WallSt.com.
Add Kirk Kerkorian to the list of legendary investors making big bets on energy. Kerkorian's trading vehicle Tracinda has purchased a 35% stake in Delta Petroleum (NASDAQ: DPTR) for $684 million, sending shares of Delta up more than 20%.
The deal will give Delta a direct capital infusion, since Kerkorian is acquiring the stake from the company, rather than buying shares on the open market as most investors. Delta will use the cash to invest in its drilling activities in the Piceance and Paradox Basins.
Delta also got a fair price from Kerkorian, extracting $19 per share from the investor. That Delta got a premium of more than 20% in the private placement indicates that there was strong interest in the company; often private placements are at substantial discounts to the market price, as was the case with Countrywide Financial (NYSE: CFC) which received a cash infusion from Bank of America (NYSE: BAC).
Kerkorian will be able to control one-third of the company's board of directors as part of the agreement.
MGM Mirage(NYSE:MGM) is recently up $1.78 to $87.38. Dubai World, a holding company for the Persian Gulf state, announced on 8/22/07 it will pay $2.7 billion to acquire a stake in MGM City Center, a 76-acre Las Vegas development. Dubai World will also buy 14 million shares from MGM for $84 a share and 14 million from investors. Unconfirmed chatter is circulating Dubai World will raise its tender bid.
Penn National Gaming(NYSEPENN), a diversified, multi-jurisdictional owner and operator of gaming properties, agreed to be acquired on 6/15/07 by certain funds managed by affiliates of Fortress Investment(NYSE:FIG) and Centerbridge Partners for $67 dollars a share. The deal is expected to close in mid-2008. PENN is recently trading at $58.26.
Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Starwood(NYSE:HOT) volatility Elevated into unconfirmed Kerkorian Chatter. Starwood, a leading hotel and leisure company, is recently up $0.64 to $57.39 on unconfirmed chatter Kirk Kerkorian's Tracinda has acquired a 10.6% stake. Starwood is frequently mentioned as a private equity break up/recapitalization candidate. It has a market cap of $11.9 billion with long term debt of $1.8 billion.September option implied volatility of 40 is above its 26-week average of 32 according to Track Data, suggesting larger risk.
Goodman Global(NYSE:GGL) volatility Elevated as GGL reviews potential strategies. GGL, a manufacturer of heating, ventilations and air conditioning products, announced on 7/20/07 it is in the process of reviewing potential strategies to enhance shareholder value. GGL engaged Goldman Sachs(NYSE: GS ) and JP Morgan(NYSE:JPM) to assist GGL in identifying and evaluating options. GGL over all option implied volatility of 48 is above its 26-week average of 41 according to Track Data, suggesting larger price risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Many thought that Kerkorian's intention was to nudge MGM Mirage (NYSE :MGM) onto the sale block, to see what his 56% of the remaining company assets might fetch in a buyout-friendly climate. The latest deal, with its implications for increased debt and holdings value, apparently caused him to rethink this move, at least for the moment.
MGM Mirage already has a huge footprint in Las Vegas, but remains very aggressive (i.e. carrying a considerable debt load) in pursuing further growth. Its new $725 million Detroit casino is scheduled to open late this year. The CityCenter complex in Las Vegas has tied up $7.4 billion and won't be ready until 2009, and MGM has put another $1 billion into a cooperative venture, MGM Grand Macau, opening later this year. It is also in talks about another huge development on the Cotai strip in Macau.
Those punters who jumped on the bandwagon at the initial announcement of Kerkorian's interest in Bellagio are jumping back off this morning. MGM Mirage stock was down more than 10% in early trading.
The title of an article in the latest issue of Business Week sums it up: "Activist Investors Get More Respect." According to Patrick McGurn of Institutional Shareholder Services, this will be the most successful proxy season ever, and corporate executives and boards of directors are more responsive than ever to the concerns of shareholders. One of the most common corporate governance changes occurring this year is a move toward majority voting, which will require directors to receive at least 50% of the vote in order to be elected. In most companies, a simple plurality is all that is necessary. "Say on pay" proposals have also been filed with 66 companies this year, which seek to give shareholders an advisory vote on executive compensation, an area that most experts agree has gotten out of control in recent years.
The evolution of activist investing has been astounding. In the 1970s and '80s, it was raiders like Carl Icahn and Kirk Kerkorian who took on entrenched management teams. The battles were often filled with animosity, with the activists characterizing the managers as, to quote Gordon Gekko, "these bureaucrats, with their luncheons, their hunting and fishing trips, their corporate jets and golden parachutes" and the managers criticizing the investors for interfering with economic growth.
While many battles for corporations still have their share of animosity (what fun would covering markets be without that?), boards are increasingly realizing the validity of many of the arguments being made by activists -- and that's good for all investors.
Defining periods of irrational exuberance can be difficult. However, one method to do so might simply be to look at the headlines. Here are this morning's:
Crescent Real Estate Equities to be purchased by Morgan Stanley (NYSE: MS) Real Estate
The headlines are not too different from the 1980s LBO boom when virtually every headline was associated with a hostile buyout of some sort. Are we approaching the end of the buyout binge? Most likely not. These periods can last for years.
This buyout boom has been fueled by a number of factors. The most important factor has been undervalued stocks, which, in many cases, still remains. In the post tech-telecom bubble of the 1990s, investors went into a cocoon while U.S. company management continued to grow earnings and increase returns on investment.
What will end this buyout boom? My bet is a massive bull market which pushes valuations off the radar screen of private equity.
With the Chrysler Group in play, the company's parent -- DaimlerChrysler AG (NYSE: DCX) -- is fielding a variety of big-money calls. The buzz is that private equity firms Blackstone Group, Cerberus Capital Management and Centerbridge Capital Partners are preparing bids.
But, hey, it's really not a mega auto deal without billionaire Kirk Kerkorian, right?
Keep in mind that Kerkorian is a billionaire for a reason: He knows how to structure deals. So his offer comes with some conditions, one being that the Chrysler Group will need to strike a good deal with the UAW. Moreover, there needs to be a way to deal with the hot potatoes of pension and health-care liabilities.
I think I would want the same things if I were shelling out $4.5 billion.
It's also getting Wall Street excited -- as there may be real interest in Chrysler Group. DaimlerChrysler's stock was up as much as 4.9% to $84.75 on the news. DCX is now up 2.85% to $83.38.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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Ford Motor Co. (NYSE: F) is cutting production at its Volvo unit, according to The Wall Street Journal. The move, which could affect one-third of workers -- some 700 -- is seen as an attempt to cut the costs and losses at the upscale Swedish brand. 
MGM Mirage
Starwood
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