|
Ford OKs spinoff, payment
|
 |
April 14, 2000: 2:15 p.m. ET
Will give holders Visteon shares plus offer of $20 cash for part of holdings
By Staff Writer Chris Isidore
|
NEW YORK (CNNfn) - In a move to enhance its stock, Ford Motor Co. announced Friday the long-awaited spinoff of its Visteon auto parts unit to shareholders, along a payment of cash or stock worth $20 for each Ford share.
While the Visteon move was widely expected, the cash or stock payment to shareholders was not.
The cash part of the payment, which Ford called a "value enhancement plan," allows shareholders to cash-out $20 of the value of their stock, rather than being a dividend that puts additional money directly into their pockets. New shares will be issued to shareholders worth $20 less than current shares at the time of the distribution. Then shareholders will get either the cash or stock for the difference in value.
 For example, if the stock is worth $60 at the time of the payment, expected to be this summer, the shareholders would one share worth $40, and have the choice of receiving either the $20 cash or an additional half of a share.
The transaction will effectively work as a share repurchase, lowering the market capitalization of the shares outstanding, and thus increasing the earnings per share. The payments will be taxed on a capital gains basis, rather than ordinary income basis, according to Ford officials.
The company believes about 40 percent of shareholders will choose cash, although Ford executives and members of the Ford family have agreed to take the stock rather than cash option. Cash distributions will be capped at $10 billion. If owners of more than 500 million shares choose cash, shareholders will receive cash on a pro rata basis. The company currently has 1.2 billion shares of stock outstanding.
The two moves are seen as trying to address Ford's sluggish stock performance. While it has risen from a 52-week low of 40-1/4 hit March 8, is still well below the 52-week high of 67-7/8 almost exactly a year ago, despite strong sales and earnings since then. Shares of the stock fell 1-3/8 to 53-1/16 in afternoon trading on a down day for most industrial blue chips, after being up as high as 56-15/16 in the morning trading.
Company officials stressed the move leaves cash-rich Ford (F: Research, Estimates) with the resources it needs to make further acquisitions or to weather a downturn in the auto industry from its current record sales levels.
"We have a very strong balance sheet going forward," said Jac Nasser, president and chief executive of Ford. "In terms of future growth, potential acquisitions...we'll always be out there making sure we look at opportunities as they come along."
The moves were approved by the company's board of directors on Thursday.
Visteon move expected for some time
The Visteon spin-off has been under consideration for about three years. It follows a similar move at rival General Motors Corp. (GM: Research, Estimates), which spun off the world's largest auto parts manufacturer, Delphi Automotive Systems Inc. (DPH: Research, Estimates), early last year.
That spin-off was done as an initial public offering, with proceeds going to GM. Ford officials said distributing Visteon shares directly to shareholders will give shareholders greater direct value, as well as speed up the process of total independence by at least a month. Ford officials said it is premature to speculate on the value of the Visteon shares.
Visteon has sales of about $19 billion annually, but it has had trouble expanding its customer base beyond Ford. Only about 12 percent of those sales are to non-Ford customers, although Pete Pestillo, chairman and chief executive of Visteon, said the company's target is for that to rise to 15 percent by the end of this year and 20 percent by 2002, even if there had not been a spin-off. This move should help it accelerate that process, he said, although he could not give new targets.
"Almost 40 percent of our new business is non-Ford," he said. "We expect to keep aggressively increasing Ford business as well. We have contracts for $17 billion of orders with Ford. We won't give up a dollar of that willingly."
Assurances given to hourly workers
The way to spin off the company was cleared in labor negotiations with the United Auto Workers union last fall, in exchange for greater job protections. About a quarter of roughly 100,000 UAW members at Ford work for Visteon.
Under that labor agreement, the hourly employees remain Ford employees during the life of the four-year pact, with the rights and benefits of Ford employees, even though Visteon is responsible for their pay.
Their salaries are far above the pay scale even at the unionized independent auto parts suppliers, although it is similar to the pay of Delphi employees. Pestillo insisted that efficient production methods and work on higher-margin products than produced by some independent competitors reduces any disadvantage that the company faces under its current contract.
"We face the penalty; we expect to deal with it," he said. "We're not going to walk from our agreement."
The company also announced its joint venture with the Mexican conglomerate ALFA will be expanded to include Ford's Windsor Aluminum and Essex Aluminum plants. This transaction will increase Ford's current 20 percent stake in the joint venture. 
|
|
|
|
|
 |
|
