Shares of Ford Motor Co. tumbled nearly 18 percent Tuesday after the automaker said it will sell 300 million common shares to help fund its health care trust for retired autoworkers and general operations.
Ford, the only major U.S. automaker that has not accepted government aid, had seen shares rally in recent weeks while its bailed-out Detroit competitors fight for survival. But shares of Dearborn, Mich.-based Ford fell $1.07 Tuesday to close at $5.01 on news of the stock sale. Analysts noted that share value generally falls once a large offering is disclosed as existing investors shrink positions before they can be diluted.
Ford said late Tuesday it agreed to sell the 300 million shares at the discounted price of $4.75 each for total proceeds of about $1.4 billion. That amount would cover a $1.2 billion cash payment due Dec. 31 to Ford’s Voluntary Employee Beneficiary Association, or VEBA. Ford has the option to make a $610 million payment — also due on that date — in cash or stock.
The company owes $13.1 billion to its VEBA by 2022, of which $6.5 billion can be paid in stock, cash or a combination of both. In March, United Auto Workers members approved a new contract that, besides freezing wages and cutting benefits, allows Ford to use stock to make payments to the retiree health care trust.
“While we continue to see recent actions to strengthen its balance sheet and reduce structural costs as positives for Ford, we remain skeptical of the recent run-up in stock price,” said Barclays Capital analyst Brian Johnson in a research note. “However, the opportunity to fund the VEBA at $6 per share versus $2 per share reduces potential dilution.”
Johnson raised his price target of Ford to $2 from $1.
The public stock offering is 105-year-old Ford Motor Co.’s first since the Ford Foundation liquidated its shares of the company in 1956 and the automaker became a publicly traded company. Since then, the number of its shares has multiplied with employee stock option grants, stock splits and preferred stock offerings.
Ford has been picking up market share amid deeper problems at its crosstown competitors, Chrysler LLC and General Motors Corp. In April, record sales of its fuel-efficient Fusion pushed it past Toyota to retake its post as the nation’s No. 2 car seller.
Even though Ford’s monthly sales tumbled 32 percent from a year earlier, it captured 16 percent of the total market. Most of those gains came at the expense of GM and Chrysler. April marked the sixth time in seven months that Ford gained retail market share.
Chrysler filed for bankruptcy protection earlier this month, while GM is working to restructure out of court but may also face bankruptcy. Shares of GM fell 20 percent or 29 cents to close Tuesday $1.15, as investors fear significant dilution of their stock values or bankruptcy as the company approaches a June 1 restructuring deadline.
Ford looks rosier through the lens of those two companies, says Richard Hilgert, president and owner of Automotive Financial Research LLC in Beecher, Ill.
“The fact they have more cash and can meet their VEBA obligation makes them look more solid, financially speaking in the short-term compared to crosstown rivals,” he said. “In the longer-term I still feel as if shareholders are taking a chance on Ford…I’m not convince Ford has turned the corner on its market share. We don’t have any clear-cut trend established that this company is on the right track with consumers yet.”
As part of the offering announced Monday, Ford is granting the underwriters a 30-day option to purchase up to 45 million additional shares. Citi, Goldman Sachs & Co., JPMorgan, Morgan Stanley, Deutsche Bank Securities Inc. and Merrill Lynch & Co. are the offering’s joint book-running managers.
AP Auto Writers Tom Krisher in Detroit and Dan Strumpf in New York contributed to this story.
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