Wednesday, May 13, 2009

Motor Industry: Ford raises $1.4 billion through share sale

Ford Motor Company has announced it has agreed to sell 300 million shares of its common stock in a public offering at a price of $4.75 per share for total gross proceeds of approximately $1.4 billion.

Ford also granted to the underwriters a 30-day option to purchase up to 45 million additional shares of common stock to cover over-allotments.

Net proceeds to Ford from the offering are expected to be used for general corporate purposes, including to fund with cash, instead of stock, a portion of the payments the company is required to make to the Voluntary Employee Beneficiary Association (VEBA) retiree health care trust with the United Auto Workers.

"We are pleased with this equity offering, which is another key step in our plan to transform Ford into an exciting, viable enterprise poised to return to profitability," said Alan Mulally, Ford president and CEO. "By issuing equity now and potentially funding a larger portion of our future VEBA obligations with cash, we are able to further improve our balance sheet and significantly reduce the potential dilutive impact of the VEBA obligations on existing shareholders."

Under the previously announced agreement in principle with the UAW, Ford has the option to settle up to 50 percent of its obligations to the VEBA in shares of Ford common stock. That includes three separate payments of $610 million due in December 2009, June 2010 and June 2011.

If Ford were to elect to settle those obligations by issuing stock to the VEBA, the number of shares Ford would have to issue would be calculated at the following share prices: December 2009: $2.00; June 2010: $2.10; and June 2011: $2.20. By accessing the equity market now and potentially using the proceeds to pay those VEBA obligations in cash, Ford is not only strengthening its balance sheet, but also significantly reducing the potential future dilutive impact of the UAW agreement.

Citi, Goldman, Sachs & Co., J.P. Morgan, Morgan Stanley, Deutsche Bank Securities Inc. and Merrill Lynch & Co. are acting as joint book-running managers of the offering.

Source: Ford Motor Company
Published by Mike Hitchen, Mike Hitchen Consulting
Putting principles before profits