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May 12, 2009 1:04 am
Ford Motor, the only one of the three Detroit carmakers surviving without a government bail-out, has further distanced itself from its troubled rivals with plans for an equity issue that could raise close to $2bn.
The proceeds could enable Ford to pay cash for a sizeable chunk of its contributions to a union-managed healthcare trust that would otherwise have been made in shares.
Alan Mulally, Ford’s chief executive, described the share issue as “another example of the fast, decisive action we are taking as we build momentum on our plan, including further progress on improving our balance sheet”.
Rival Chrysler is restructuring its balance sheet under bankruptcy court protection, while General Motors is widely expected to follow suit before the end of the month.
Ford said that it would issue up to 345m in common shares. The price of the issue has yet to be determined. The Ford family will remain firmly in control through its holdings of multiple voting stock.
Ford shares have quadrupled since February, although they slipped back about 5 per cent to $5.82 in after-hours trading on Monday, having lost 2.6 per cent earlier in the day. The new issue will dilute Ford’s equity base by about 14 per cent.
The union-managed healthcare trust is due to be set up early next year under an agreement reached in labour negotiations in 2007. Ford is obligated to pay a total of $13bn to the trust.
But following the deterioration in car markets over the past year, the company reached a deal with the United Auto Workers in March to pay up to half its contribution – $6.5bn – in shares, rather than cash.
The payments are to come in instalments, starting in December and ending in 2022. Under the March agreement, the shares to be paid into the trust would have been valued at between $2 and $2.20 each, or just over a third of the current market value.
Ford said proceeds from the new share issue would be used to fund “all or a portion” of three instalments over the next three years, totaling $1.8bn, that would previously have been paid in shares.
Ford said the proceeds of the share issue would be kept in cash and marketable securities pending the payments to the trust, known as a voluntary employees’ beneficiary association.
The offering is being led by Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley.
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