Thursday, May 01, 2008

Kerkorian & Buffett Are Back On The Investment Trail

The beginning of this week saw evidence of a return to big capital moves and investments capable of triggering later, or funding current megers.

First, Kirk Kerkorian has bought up just under 5% of Ford, with a tender, at a premium, for about as much additional equity in the firm.

Kerkorian, as you can read from my prior labelled posts, most recently this one, involving GM, has been around the auto maker investment track twice already. He triggered Chrysler's sale to Daimler, and fought unsuccessfully, through his emissary, Jerry York, to help GM retrench and deliver more shareholder value in a more timely manner.

My guess is that Kerkorian likes what he sees in Alan Mullaly's efforts at Ford, but correctly realizes that, on its own, Ford will never be a long term provider of consistently superior returns for shareholders. Thus, Kerkorian is probably positioning for either an exit at a 'local' top, before the stock price plunges again, or to participate in his J.P. Morgan-style sector-based investment banking activity by marrying Ford with Carlos Ghosn's Nissan.

Either way, I wouldn't bet against Kerkorian reaching his own investing objectives with Ford. And, for what it's worth, we learned this week that York has already met with Mulally to assure him of Kerkorian's support and satisfaction with his efforts to date at the automaker.

Then we have Warren Buffett joining Mars to buy Wrigley. Due to Wrigley's relative scale deficiency, and the temporary stock price depression due to margin pressures caused by commodity price inflation, Mars moved quickly to secure this acquisition. By using Buffett, it avoided both a bidding war and the need for a protracted campaign to convince lenders to fund the acquisition.

Buffett is usually fairly astute at these sorts of deals, and probably, as a price for his participation, got nice terms, too.

So it would seem that large, sophisticated private investors are demonstrating that it's safe to go back to investing in companies and betting on longer term expansion and business health.

Hopefully, the more publicly-held segments of the financial services sector will be following soon, in a considered and intelligent fashion.

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