Ford Motor Company announced that it will offer 300 million common shares in public offering on market close Tuesday 12 May 2009.
This blog focuses on how an investor can benefit from this news.
How is the stock offering beneficial to current Ford’s common share holders?
We know that these 300 million common shares will raise anywhere from $ 1.2 billion to $2 billion for Ford but will dilute current share holder’s equity as these new 300 million shares will be available as common stock but there is a silver lining to this offering. Ford is most likely to use the proceeds of this sale to shore up cash reserves as it distances itself from bankruptcy. This not only will make company’s balance sheet stronger but will also aid distancing Ford from other US auto manufacturers like GM and Chrysler. This move will also boost investor confidence that Ford will surely see the it through this automotive depression. So the current Ford Motor Co. shareholders should realize that this stock offering is beneficial for them and will bring in delayed gratification them.
Some Significant Improvements at Ford
UAW Concessions:
Unlike GM and Chrysler, Ford has been successful in working out new terms with UAW. These concessions included reduced labor costs by $ 500 million annually and making half the contributions to health care trust for UAW workers by stock instead of cash. The later does carry a risk of diluting company’s stock value even further but these are considered be lifesaving concessions gained by Ford.
This blog focuses on how an investor can benefit from this news.
How is the stock offering beneficial to current Ford’s common share holders?
We know that these 300 million common shares will raise anywhere from $ 1.2 billion to $2 billion for Ford but will dilute current share holder’s equity as these new 300 million shares will be available as common stock but there is a silver lining to this offering. Ford is most likely to use the proceeds of this sale to shore up cash reserves as it distances itself from bankruptcy. This not only will make company’s balance sheet stronger but will also aid distancing Ford from other US auto manufacturers like GM and Chrysler. This move will also boost investor confidence that Ford will surely see the it through this automotive depression. So the current Ford Motor Co. shareholders should realize that this stock offering is beneficial for them and will bring in delayed gratification them.
Some Significant Improvements at Ford
UAW Concessions:
Unlike GM and Chrysler, Ford has been successful in working out new terms with UAW. These concessions included reduced labor costs by $ 500 million annually and making half the contributions to health care trust for UAW workers by stock instead of cash. The later does carry a risk of diluting company’s stock value even further but these are considered be lifesaving concessions gained by Ford.
Debt Holder Agreements:
Ford also negotiated its survival with the debt holders by which Ford reduced its debt by $9.5 billion and lowered annual interest payment by more than $ 500 million annually. Lower loss in Q1 of 2009: Yes, these days loss in US automotive sector is a reason to celebrate especially if it was lower than previous quarter. For the 1st quarter of 2009 Ford posted a loss of 60 cents a share which was lower than that expected by analysts.
Win Win for Investors:
Is there a way where you can directly benefit from Ford’s stock offering without being negatively affected by equity dilution?
Yes, look to invest in Ford’s biggest suppliers. As mentioned above, lower loss in the most recent quarter along with concessions obtained from UAW and debt holders are essential for Ford’s survival. In addition to that, Ford now with its stronger balance sheet and new strategy will be able to steal customers from GM and Chrysler. Improved sales of Ford vehicles will be reflected in the future revenues of its biggest suppliers. Investing in these suppliers will ensure great returns without share holder dilution. While doing so an investor has to ensure that particular supplier’s dependence on GM or Chrysler is at a minimum.
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