Kerkorian's Stake in Tesoro Raises Frontier's Shares

Despite record high crude oil prices putting the squeeze on refineries margins, the stocks are up strongly across the board on news that Kirk Kerkorian wants to take a 20% stake in Tesoro (TSO), and willing to pay a 12% premium to Friday's price to do it.

• Tracinda Corp. said it plans to offer $64 apiece for 21.9 million, or about 16 percent, of outstanding Tesoro shares. The firm, of which Kerkorian is the only shareholder, said it already owns about 4 percent of Tesoro shares.

• The offer represents a premium of about 12 percent over Thursday's closing price of $57.20. It is "without regard" to the 10-cent-per-share dividend Tesoro expects to pay next month.
• Tracinda said it "believes that the fundamentals of the petroleum refining industry make it an attractive area for investment," the firm said in a statement. Tesoro "is well positioned within the industry and has a management team that is effectively executing its strategic plan," it added.

While this group is not exactly a secular growth story, it is great for 2-4 month trades a few times a year. However profit margins right now are at trough levels so it hasn't been a good investment of late - with that said, it has been strange to see them strengthening a bit in the face of ever higher crude prices; well now we see why. (stuff like this never leaks out on Wall Street) yeh.

Some earlier posts on this sector are here

I only hold a smallish position in Frontier Oil (FTO) which is up 6.5% in early trading; other names in the sector surging are Holly Corp (HOC), Western Refining (WNR), and king refiner Valero Energy (VLO). Another reason it is tough to be a short in this market - there is so much money swirling around to do takeovers, buyouts, et al when prices get too low.

I am going to take this opportunity to sell 200 of the 350 shares in the position in Frontier Oil (FTO). I like this name but need some cash and I have a nice spike to sell into. This will raise about $9200 and bring down the position to less than 1%. I'll consider buying back in the low $40s if it retraces.

Disclosure: Long Frontier Oil in fund; no personal positions