Ford to Buy Back Shares in Open Market : Announcement Sends Stock to 52-Week High
Claiming that its stock is significantly undervalued, Ford said Thursday that it plans to buy back 20 million of its own common shares in the open market beginning next week.
The announcement sent Ford’s stock soaring on the New York Stock Exchange. It closed at a 52-week high of $51.125, up $2.125 from Wednesday.
When the latest stock buy-back is completed, Ford said, it will have spent $1.5 billion to repurchase 30 million shares over the past year, thus reducing the number of fully diluted shares outstanding by about 15%. The company, which now has about 181 million shares outstanding, began an earlier program to buy back 10 million shares last November and has so far repurchased 9 million of those shares.
Value Called Too Low
Ford officials said they launched the buy-back program because they believe that the market value of Ford stock hasn’t reflected the firm’s financial turnaround since the recession. (For the first nine months of 1985, Ford earned $1.795 billion, down 17.9% from last year’s $2.186 billion.) The executives added that the company’s huge underlying assets are also being undervalued by the stock market.
The stock repurchase plan does not appear to be a result of Ford management’s fears of a possible takeover, however. The family of founder Henry Ford retains 40% of the stock voting power at Ford through the firm’s special Class B stock, which was created when Ford went public in order to allow the family to maintain working control of the company.
Meanwhile, in a discussion of its operations that accompanied the announcement of its stock buy-back program, Ford indicated Thursday that it has no plans to build any new manufacturing facilities in North America and said that its ongoing modernization program is being limited to existing plants.
Ford has closed 15 plants worldwide--including eight in North America--since 1979 but said it is limiting increases in production capacity “to those that (can) be accomplished in existing facilities. This means costs will be lower in any future downturn . . . in clear contrast to the past.”
The No. 2 auto maker also said that it is looking for additional acquisitions in the fields of financial services, electronics, aerospace and communications in order to further reduce its dependence on the volatile auto industry.
Like General Motors and Chrysler, Ford has already made several big acquisitions this year.
In August, Ford announced that it will buy San Francisco-based First Nationwide Financial, the nation’s ninth-largest savings and loan, from National Intergroup for $493 million. In October, Ford said it plans to purchase the Sperry-New Holland farm equipment subsidiary of Sperry for $330 million. The auto maker now plans to merge Sperry-New Holland with its own tractor operations.
Ford has also been investing in several small high-tech firms in order to keep up with the latest in manufacturing technology.
Still, Ford said it is also trying to shed some of its old-line operations, most notably its steel business.
