Ford Case
Shanghai Jiao Tong University
Antai College of Economics and Management
Corporate Finance Homework
Whoever Pocketed Value From VEP?
Team： Dong Nan 1081209045
Gu Chengzong 1081209020
Li Hongke 1081209050
Lu Linlin 1081209031
Lu Yao 1081209043
March 2009
Abstract
Excessive cash and undervalued stock price forced Ford to conceive an unprecedented cash payout system - Value Enhancement Plan in 2000. For a dual-stock-structure company, this recapitalization did favor much Ford family which held the dominant voting power by giving it larger flexibility, enhanced control with less capital as well as tax benefit and confidence improvement. While the common shareholders may benefit less compared to other alternatives, as like a stock repurchasing plan, given their preferences and different interest to the family. On the other hand, it is not yet sure whether this VEP could really enhance Ford’s value by enhancing public confidence towards company’s future growth, as it already decreases company’s fundamental value due to tax payment. Moreover, from a long run perspective, a highly cyclical company as Ford should have been more prudent in taking strategies. Large cash payout strategy will weaken its immunity to future economical downturn.
Keywords: Value Enhancement Plan, dual-stock-structure, voting power, public confidence enhancement, stock buyback, cash dividend payout.
Main Points Overview * Problems identification: excessive cash and undervalue stock. * Supported by comparison with GM and DaimlerChrysler * Research on VEP and alternative cash payout methods: * From ford family’s point of view, VEP is the best in the way of more flexibility, higher voting power, higher percentage share holding, lower taxes, most positive signaling to the market and so on. * From common shareholders view, we believe people with different preference ranks these methods differently. * Research
Antai College of Economics and Management
Corporate Finance Homework
Whoever Pocketed Value From VEP?
Team： Dong Nan 1081209045
Gu Chengzong 1081209020
Li Hongke 1081209050
Lu Linlin 1081209031
Lu Yao 1081209043
March 2009
Abstract
Excessive cash and undervalued stock price forced Ford to conceive an unprecedented cash payout system - Value Enhancement Plan in 2000. For a dual-stock-structure company, this recapitalization did favor much Ford family which held the dominant voting power by giving it larger flexibility, enhanced control with less capital as well as tax benefit and confidence improvement. While the common shareholders may benefit less compared to other alternatives, as like a stock repurchasing plan, given their preferences and different interest to the family. On the other hand, it is not yet sure whether this VEP could really enhance Ford’s value by enhancing public confidence towards company’s future growth, as it already decreases company’s fundamental value due to tax payment. Moreover, from a long run perspective, a highly cyclical company as Ford should have been more prudent in taking strategies. Large cash payout strategy will weaken its immunity to future economical downturn.
Keywords: Value Enhancement Plan, dual-stock-structure, voting power, public confidence enhancement, stock buyback, cash dividend payout.
Main Points Overview * Problems identification: excessive cash and undervalue stock. * Supported by comparison with GM and DaimlerChrysler * Research on VEP and alternative cash payout methods: * From ford family’s point of view, VEP is the best in the way of more flexibility, higher voting power, higher percentage share holding, lower taxes, most positive signaling to the market and so on. * From common shareholders view, we believe people with different preference ranks these methods differently. * Research
References: 1. Allan Sloan, It Seemed Like a Good Idea at the Time, Sep 2006, Available From:< http://www.washingtonpost.com/wp-dyn/content/article/2006/09/04/AR2006090401007.html>. 2. Dividend at Ford Is Being Cut in Half, The New York Times, Oct.2001, Available From:<http://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FNews%2FBusiness%2FCompanies%2FFord%20Motor%20Company>. 3. Ethan Haskel, The Ultimate Ford Rebate? Jun.2000, Available From:< http://www. fool.com /ddow/2000/ddow000628.htm>. 4. Ford Motor Annual Reports 2003, Available From :< http://www.ford.com/microsites/ annual-reports>. 5. Ford Motor Annual Reports 2007, Available From :< http://www.ford.com/microsites/ annual-reports>. 6. Ford Motor Company Value Enhancement Plan Important U.S. Federal Income Tax Information, Sep.2000, Available From: < http://www. ford.com/about-ford/investor -relations/investment-information/ value-enhancement-plan>. 7. Historical Dividends, Available From :< http://www.ford.com/about-ford/investor -relations/investment-information/dividends-history>. 8. Visteon Corporation Spin-off Basis Alloation Information For Ford Motor Company Shareholders, Jun. 2000, Available From: < http://www.ford.com/about-ford/investor relations/investment-information/visteon-basis-allocations-us>.