For the exclusive use of M. Wang
REV: MARCH 28, 2002
ANDRÉ F. PEROLD
Ford Motor Company's Value Enhancement Plan (A)
On April 14, 2000, Ford Motor Co. announced a shareholder Value Enhancement Plan (VEP) to significantly recapitalize the firm’s ownership structure. Ford had accumulated $23 billion in cash reserves, close to the company’s largest ever cash position and significant relative to Ford’s $57 billion equity market capitalization. Under the VEP, Ford would return as much as $10 billion of this cash to shareholders. In exchange for each share currently held, the plan would give stockholders one new share plus the choice of receiving $20 either in cash or additional new Ford common shares. Ford also announced that it would distribute ownership of its Visteon Corp. parts unit to shareholders.
Ford’s share price had performed poorly over the previous year (Exhibit 1), and the proposal drew a positive reaction from analysts who had been urging the company for months to distribute cash to stockholders. Some hailed the VEP as the boldest step yet by Ford Chairman William Clay Ford Jr. and Chief Executive Officer Jacques Nasser to convince investors that they were undervaluing the world’s No. 2 automaker.
However, the plan raised a number of questions for investors. Why was Ford proposing this transaction instead of a traditional share repurchase or a cash dividend? How did the interests of the Ford family factor into this decision, and what did the transaction imply about the future involvement of the family in the company? Why was Ford distributing such a significant amount of cash at this particular point in time? Did the distribution signal a change in the company’s appetite for making acquisitions or future capital expenditures? If shareholders collectively elected to receive less than $10 billion in cash, how would Ford distribute the remaining cash?
Ford Motor Company
Headquartered in Dearborn, Michigan, Ford Motor Company was the world’s largest producer of trucks and, after General Motors, the second-largest producer of cars and trucks combined. Ford also engaged in other businesses, including manufacturing automotive components and systems and financing and renting vehicles and equipment. The company had engaged in limited diversification in the 1950s and 1960s, but by the 1990s it had refocused attention on its automotive businesses and financial services. Ford also had grown significantly by acquisition. Recent major transactions included Ford’s purchase of Hertz Corporation in 1987, Jaguar Cars in 1989, Volvo Cars in 1999, and Land Rover in early 2000.
________________________________________________________________________________________________________________ Professor André F. Perold prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2001 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
This document is authorized for use only by Man Yin Wang in Applied Corporate Finance S2 Yr2014 taught by Kyung Shim University of New South Wales from July 2014 to December 2014.
For the exclusive use of M. Wang
Ford Motor Company’s Value Enhancement Plan (A)
Ford competed in an industry that was notoriously sensitive to the economic cycle. (See Exhibit 2 for the relationship between U.S. auto industry sales and GDP growth.) Car companies would see large swings in their cash...
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