Ford Motor Co Essay

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Ford Executive Summary Ford Motor Company announced a shareholder Value Enhancement Plan (VEP) on April 14th, 2000, this plan will significantly recapitalize the firm’s ownership structure. Reflecting upon the case study, we feel that this VEP cannot foreseeably add any meaningful value to Ford shareholders. The main points we looked at during our analysis were: • As an institutional investor are we in favor of this plan? • What options would we take if the plan went through? • Is this plan driven by the Ford Family? How does it address their needs? The actual plan contains many provisions and clauses but in summary, Ford will be re-distributing up to 10$ billion dollars in a form of a 20$ per share dividend, which can be taken in the form of new stock or cash. The cash dividends will provide the Ford family liquidity without selling Class B shares. Shareholders would be able to exchange existing shares for new shares, and receive 20$ per share cash or equivalent in new common shares. It should be noted that capital gains tax apply. As an institutional investor, we are not in favor of the Ford Value enhancing plan. Through fundamental analysis, we can see that this plan would decrease enterprise value (lowering cash/equity), decrease Ford liquidity, and with dilute voting rights of common shareholders. Under the agreement, the Ford family is able to keep their 40% voting power, while effectively lowering their 4.9% equity position to 3.6%. The plan also allows Class B shareholders to receive common stock dividend by new issuance, and this explicitly violates the one share, one vote principle. From the case, opponents of the plan argued “Common shareholders should have the right to independently approve or reject a transaction that would result in the issuance of common shares to the Ford family.” From our understanding, this plan could be

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