Billionaire investor is aiming to get more of Tesoro’s stock

Web Posted: 10/27/2007 12:16 AM CDT

Vicki Vaughan
Express-News

A billionaire best known for his golden touch with investments in Las
Vegas hotels, casinos and Hollywood movie studios announced Friday that
he plans to become the biggest shareholder in Tesoro Corp., the San
Antonio-based refiner.
In a surprise move, investor Kirk Kerkorian said he plans to spend $1.4
billion to purchase 16 percent more of Tesoro’s common stock, adding to
the 4 percent stake he holds now.

The buy translates to 21.9 million shares of the company that’s grown
to be the biggest independent refiner on the West Coast and one of the
largest publicly traded companies in San Antonio.

Kerkorian, the seventh-richest American, is offering $64 a share, or
about 12 percent more than Tesoro’s $57.20 closing price on Thursday.
The company’s shares climbed $7.28, or 13 percent, to close at $64.48
Friday in New York Stock Exchange trading.

Tesoro management did not respond to requests for comment.

But a Wall Street analyst said Kerkorian’s move could mean Tesoro is a
ripe acquisition target.

"Kerkorian is interested in putting the company in play; he wants to
make a quick buck," said Fadel Gheit managing director of oil and gas
research at Oppenheimer & Co. in New York. A company is said to be "in
play" when it’s an acquisition target.

Kerkorian "is not going to buy Tesoro to make it a better company,"
Gheit added. "He probably wouldn’t know the difference between a
refinery and a shopping mall."

Yet Gheit said Kerkorian "is an investor and this is what private
equity funds do. He may have some advisers who suggested he do this."

Kerkorian spokesman Tom Johnson said Friday that Kerkorian "has no
intention at this time of increasing his holdings beyond the 20 percent
share."

Kerkorian is making the cash tender offer for Tesoro shares through
Tracinda Corp., a private company of which he’s the sole owner. Before
Friday’s announcement, Tracinda had purchased 5.5 million Tesoro
shares, or about 4 percent of the shares outstanding, the company
disclosed.

In explaining the investment, Tracinda said in a statement that "the
fundamentals of the petroleum refining industry make it an attractive
area for investment." Kerkorian believes "that the company is
well-positioned within the industry and has a management team that is
effectively executing its strategic plan."

But other analysts said Kerkorian’s bid signals an endorsement of
management and of Tesoro’s strong performance this year.

Analyst Roger Read of Natixis Bleichroeder’s Houston office said
Kerkorian likely seeks Tesoro "as an attractively valued company and
one that clearly has a lot of free cash flow generation in front of
it," Read said. "And maybe he’s got some plans for what to do with
that."

Kerkorian "may push for higher dividends, a major share repurchase
programs or even an acquisition," Read said.

Tesoro’s shares have almost doubled in value this year, rising from
less than $33 a share in early January. The company has reported eight
consecutive quarters of rising profit. It’s scheduled to report
third-quarter earnings next Thursday.

Tesoro won praise from analysts after Chairman and CEO Bruce Smith
restructured management in early 2005, bringing in new talent and
promoting some executives already with the company. And Tesoro has been
on a buying spree, spending $3.4 billion in six years to buy refineries
and gasoline stations.

Its last purchase occurred in May when it acquired a Royal Dutch Shell
plant in a Los Angeles suburb. That brought the number of its
refineries to seven and boosted its total refining capacity to almost
670,000 barrels of crude oil a day.

The company, founded in 1964 by San Antonio oilman Robert V. West with
$1,000, plans to move into new corporate headquarters at U.S. 281 and
Redland Road in the summer of 2009.

Kerkorian, 90, the son of Armenian immigrants, has a net worth of more
than $18 billion, according to Forbes magazine.

A World War II veteran, Kerkorian made his first fortune selling an
airline in the 1960s, and he’s been a major Hollywood player, selling
the MGM movie studio for $5 billion to Sony and others, netting $1.8
billion, Forbes said.

At times, Kerkorian has invested in a company and then pushed
management to make changes. Last year, as his stake in General Motors
approached 10 percent, he pressured the automaker to explore an
alliance with Renault and Nissan Motor Co. ‘ a move that failed.