Ford Plans Stock Swap to Reward Shareholders
Ford Motor Co. said Friday that it will launch a massive stock-swap plan and pay shareholders up to $10 billion in cash to bolster its stock price and to share profit from a booming automotive market with investors who have not been rewarded on Wall Street.
The move, on a day the stock market plummeted, weakened the standing of the world’s No. 2 auto maker with both Moody’s Investors Service and Standard & Poor’s, which lowered their long-term ratings a notch on Ford and its Ford Motor Credit Co. unit.
Separately on Friday, Ford confirmed that it would complete the previously announced spinoff of its Visteon automotive parts unit by the end of the year. Ford shareholders would receive 100% of the shares of the independent Visteon. The new company, which had $19.4 billion in sales last year, would rank as the third-largest automotive parts company in the world, behind Delphi Automotive Systems Corp., the parts unit spun off last year by General Motors Corp., and Germany’s Robert Bosch.
Ford’s lowered credit ratings--which dropped most of the company’s corporate and senior secured and unsecured ratings to A from A+--means the company will be paying slightly higher interest on borrowings over the next few years, analysts said.
“But it doesn’t mean much more than that,” said Burnham Securities’ David Healy. “The whole bond market was just nervous on a day the stock market was collapsing.”
The rating agencies said they are concerned that Ford’s plan to pay its shareholders up to $10 billion would deplete its reserves at a time when the company is negotiating to buy South Korean auto maker Daewoo Motor Co. and is rumored to be courting the family that controls Germany’s BMW.
“My feeling is that Ford can regenerate the $10 billion from normal operations over the next few years,” Healy said. “So they have a good shot in the long term of getting their A+ ratings back.”
As of Dec. 31, Ford had $24 billion in cash and marketable securities and was carrying $12 billion in debt. Ford officials said the deal will leave it with plenty of cash to survive any downturn in the auto industry or to pay for acquisitions.
“It’s a great idea,” Healy said. “Shareholders get a return on their capital, plus a hunk of Ford Motor Co. They get a return on investment at a time the market isn’t allowing it.”
Shares of Ford fell $2.19 to $52.25 in Friday’s wild trading on the New York Stock Exchange. The auto maker’s shares have traded as high as $67.88 in the last year.
