Ford Motor Co.’s $10 billion recapitalization plan to increase shareholder value does little to increase the value of the company, but does cement the Ford family’s power base, according to critics of the plan.
TIAA-CREF, a New York City financial services firm, owns 8.4 million shares of Ford stock, and the California Public Employees’ Retirement System (Calpers), which has 6.5 million shares, have already said they will vote against the plan. Ford has about 1.2 billion shares outstanding.
Both claim the company’s Value Enhancement Plan (VEP) allows the Ford family to retain its 40 percent voting share in the company, while decreasing its overall ownership in the company or just the opposite: To increase its ownership in the company without having to make any real investment in it.
“We are disappointed that the board of directors of Ford Motor Co. has structured the plan in a way that benefits Ford family interests at the expense of public shareholders,” said Peter Clapman, TIAA-CREF senior vice president and chief counsel of investments, in a released statement.
Institutional Shareholder Services (ISS), an adviser to large investors, came out against the value enhancement plan on July 19. The ISS statement emerged one day after New York State Comptroller Carl McCall sent Ford chairman William Clay Ford Jr. a letter registering his opposition. The state’s retirement fund has 3.7 million Ford shares worth some $170 million, according to a report in Reuters.
Ford calls VEP kosher
Ford CFO Henry Wallace said he felt the VEP “provides the greatest benefit and the greatest flexibility to the greatest number of Ford stockholders in a manner that is fair to all.”
He expounded upon the opposition to the plan later: “From our standpoint, it’s a very tax-efficient, good program for our shareholders,” Wallace said at a July 19 news conference for the company’s second-quarter earnings release. “It’s disappointing that some people have a small concern, but it is a small concern.”
The plan, which has three options, came about as a result of the board’s decision to give back some of the $25 billion in cash reserves to investors. The company had several options before them: A stock buyback, a stock split or upping the dividend. However, the company elected to give the money out as part of a “recapitalization” plan, which is ultimately more complicated.
Shareholders have three options: The first is to accept new shares equal to their current holdings, plus $20 for each share they own. The second is to take the $20 per share in extra stock. The final option is a mix of options one and two.
The Ford family has basically said they’ll take the second option, which will increase its stake in the company. Currently, Fords own 72 million shares of special Class B stock. The protestors can complain all they want, and many will vote against the plan on Aug. 2, but since the Ford family controls 40 percent of the voting stock, getting the remaining 10 percent plus one shouldn’t be too difficult.
The $20 per share payout is an expected amount. The exact amount of stock, or stock and cash that shareholders will receive through the VEP will be based on the lower of $60 per share or an average price determined over a five-day trading period, July 24-28. The cash amount paid per share is subject to adjustment if more than $10 billion in aggregate is elected or if the average price exceeds $60 per share. Details about the pricing period and how it will affect the VEP will be included in the proxy statement/prospectus. The average price over this trading period will be announced following the market close on July 28.
Class B shares were created when Ford went public in 1956 to protect the Ford family interests. The shares carry more voting rights. While the Ford family has 5.9 percent of the economic interest in the company, their Class B shares control 40 percent of the voting power. Wallace said Class B holders would have 7.1 percent of the economic interest after the plan is complete, and 41.8 percent of the voting power.