“Today’s equity offering is another example of the fast, decisive action we are taking as we build momentum on our plan, including further progress on improving our balance sheet.” Well, he would say that, wouldn’t he? And now’s as good a time as any for Ford CEO Alan Mulally to cash-in some of his employer’s chips by selling 300 million shares of common stock. Ford’s stock price has tripled—from not very much to three times not a whole lot—since Chrysler filed for Chapter 11 and GM heads for same. And Ford needs a mountain of cash to honor their contract with the United Auto Workers. While the MSM is busy repeating Ford’s “we’re the only one not suckling on the federal teat” mantra, keep in mind that the sale should raise $1.8 billion or so, and we’re talking a $15 billion total obligation the union’s VEBA health care fund. The market knows: Ford’s stock sank nine percent today on the news of the offer. Still, as we’ve said all along, there’s something to be said for being the last man standing. The question is, what? Let’s hope it’s not “our turn.”
To be fair, the DJI was down over 155 points. The drop in Ford stock may just be part of the profit taking that went on today.
S&P 500 ended the day down 2.15%, Ford was down 2.56%. The sale of those new shares means dilution for the existing shareholders, so you would expect Ford stock to be down a little on this news. Also, it is 300 million shares, not 300 million dollars. Ford says that some, but not all, of the proceeds will be used to meet VEBA obligations.
“Proceeds from the sale, which would raise more than $1.8 billion at today’s closing price, will go toward general corporate purposes including the union fund, Ford said in a statement. Ford had 2.8 billion shares outstanding as of May 1, so the new stock would amount to an 11 percent increase. ”
Considering that this sale means existing shares now represent 11% less of the company than they previously did, Ford only dropping about with the overall market rate is a win for Ford.
I wonder if the various UAW VEBAs are separate funds by automaker or if it is all one big fund. Does anyone know? The ex-Ford retirees might not be too happy to have their benefit funding co-mingled with the ex-Chrysler or ex-GM folks.
Isn’t this money just going to go to the same VEBA that will be bleeding out cash to prop up a bankrupt Chrysler while waiting for Fiat to take over at the wheel?
I’m sure that’s a too-simple view of things but it almost seems like Ford is indirectly helping keep Chrysler afloat.
Good explanation John. Here’s the reason why issuing new shares doesn’t necessarily kill the share price:
The market has decided that the company is worth $6 per share, with 2.8 billion shares, that is 16.8 billion dollars.
If the company then issues (say) 280 million shares, at say $5, then after the share sale the company has an extra 1.4 billion in its coffers, so its value is 16.8+1.4=18.2 (since obviously a dollar of cash is worth a dollar)
So the new average value per share is 18.2/(2.8+.28)=$5.91
On the other hand of course everyone who subscribed to the new isssue may just flip them for a quick gain, which does depress the short term share price.
Isn’t this money just going to go to the same VEBA that will be bleeding out cash to prop up a bankrupt Chrysler while waiting for Fiat to take over at the wheel?
I’m sure that’s a too-simple view of things but it almost seems like Ford is indirectly helping keep Chrysler afloat.
I thought (assumed) that each VEBA was separate from the others. Surely the UAW isn’t THAT stupid! Oh, wait…
Any domestic car company that can raise private equity in this climate is to be congratulated. It shows that investors don’t think Ford will follow the same path to destruction as GM and Chrysler. I think Ford is quickly becoming THE American car company, because of management, quality, product, and the fact that it isn’t run by Obama and the unions.
that photo should be captioned:
Stan and Ollie – the CEO addition
“Pursuant to the Modification, the first three payments would be due on December 31, 2009, June 30, 2010 and June 30, 2011. At each date, up to $610 million of the amounts payable could be satisfied by the delivery of Ford common stock (valued at fixed prices of $2.00, $2.10 and $2.20 per share, respectively). We intend to use a portion of the proceeds of this offering to fund all or a portion of the payments to the VEBA in lieu of delivering shares on those payment dates.”
If Ford is able to sell shares at $6 and repay the VEBA in cash rather than diluting equity at three times that rate while also preventing union ownership in the company that sounds like a pretty good deal to me. The full amount of VEBA payments are not due immediately, so there will be plenty of time to use this strategy in the future too. Better yet, Ford may start generating cash that could be used to pay the VEBA, but let’s not think too far ahead now.
Any domestic car company that can raise private equity in this climate is to be congratulated. It shows that investors don’t think Ford will follow the same path to destruction as GM and Chrysler. I think Ford is quickly becoming THE American car company, because of management, quality, product, and the fact that it isn’t run by Obama and the unions.
I agree with that to a point, but the question is, will Obama and the UAW allow Ford to succeed independently? It undermines the case for the continuing Bail Out to have a successful Ford.
Notice that Obama has been openly hostile towards the non-TARP Banks.
I have never owned a Ford, but I”d be more likely to buy one over Obama’s GM or Chrysler. However Ford still has the UAW around it’s neck… I certainly wouldn’t invest in Ford.
paris-dakar: I agree with that to a point, but the question is, will Obama and the UAW allow Ford to succeed independently? It undermines the case for the continuing Bail Out to have a successful Ford.
It depends on how the economy fares in the coming months. People accepted the initial bailout(s) because of fears that a simultaneous collapse of GM and Chrysler would send the economy into a complete tailspin. Even then, note that support for the bailouts was never overwhelming, even among Democrats.
If the economy improves, and GM and Chrysler are still bellying up to the bailout bar, look for increased public backlash. Obama will be forced to say “Enough is enough” and let them sink or swim on their own, UAW or no UAW.
As I have said before, Detroit has the potential to become this administration’s Iraq War, so he has to walk a very fine line with these companies, especially if the economy shows signs of improving.
paris-dakar :
I agree with that to a point, but the question is, will Obama and the UAW allow Ford to succeed independently? It undermines the case for the continuing Bail Out to have a successful Ford.
I have to solidly disagree with you here. The government has no desire to be in the car business. The collapse of two very large employers during the middle of the largest economic retraction since the Great Depression puts the government in a less than desirable position. Also, Chrysler and GM begged the government to come to their aid.
The bailout is based on slowing economic collapse until the economy is back in sufficient health to handle the shock (when Chrysler BKs again in a couple of years and the economy is healthy, Obama will be waving them bye-bye). If Ford is operating successsfully, that’s great, because its one less mess to mop up. I’m sure the Secretary of the Treasury would like one less homework project:)
Ford’s Common Stock investors seem to have woken up this morning and realized that Ford just gave them an 11% haircut:
http://finance.yahoo.com/q?s=F
$5.28/share, down 13%
Oh yeah, Stan and Ollie! Now I get it…I thought that was Steve Ballmer on the left.
Mulally for president!!!
I guess Tata will be forking over $2B owing for Jag and LR so that will help too. Perhaps this little by little approach will get them through.
I read an article yesterday that talked about how Ford is doomed because they won’t have the benefit of shedding debt or union restructuring like GM and Chrysler. I don’t drive a Ford but I like cheering for the underdog. Anyway, two thoughts on these supposed disadvantages:
1. Even though they have to restructure debt over a longer period of time, they have the benefit of uninterrupted development of their lineup and advertising so while GM and Chrysler (collectively “C11 Motors”) are being reborn, Ford will continue to suck up sales like a well-oiled machine.
2. I think the union is a non-factor. Either they will agree to concessions to fall in line with what the other two have (not likely) or the unions at C11 Motors will ‘readjust’ themselves to match with Ford (more likely). In actual fact, it will probably be somewhere between the two. In the future all auto companies will be mindful to keep a leash on the union dog (specifically on items such as benefits and pension provisions).
What I’m not sure about is dealer bloat. If C11 Motors cuts their dealer network but Ford can’t do the same, that’s a problem. I’ve read here that Ford doesn’t have a huge glut of cars stuck in the network so promoting new models (Fusion, Taurus, Fiesta) will be easier. That will continue building the momentum needed to kill the cash burn and work towards shedding further debt.