Ford Motor And Value Enhancement Plan

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Ford Motor and Value Enhancement Plan Ford Motor announced its value enhancement plan (VEP) in 2000 to restructure its ownership. With the new VEP, Ford aimed to pay $10 billion cash back to its shareholders. Basically, the VEP provided all the existing shareholders, including the family and common shareholders, a proposal to exchange their shares one-for-one for new shares accompanying with an additional option of ei-ther achieving $20 per share or equivalent extra new shares based on the Ford’s new stock price. Compared with two conventional pay-outs methods – cash dividends and share repurchases, Ford’s VEP is a more flexible way. The reasons are as follows: Value Enhancement Plan vs. Cash Dividends Cash dividends drop the value of firm…show more content…
Therefore, the VEP is advantageous for shareholders who want liquidity from the investment by giving them tax efficiency benefits. Value Enhancement Plan vs. Share Repurchases Since Ford management believe that the share prices were undervalued in the past few years, the implement of VEP is an effective approach to buy back part of its outstanding stocks, which is sim-ilar to share repurchases. For Ford management and family members, they are able to strengthen their control of the company. If all the Class B shareholders retained their stocks and all the $10 billion cash was disbursed to other shareholders, the percentage of Class B share would increase from 5.8% to 7.04%, and their 40% voting power will be further consolidated. Although both of these two methods have the similar function in adjusting the capital structure, VEP has its advantages in terms of less limitation and higher efficiency. According to SEC rules, Ford’s maximum repurchase volume from open market was 2.075 million per day in 2000, which means Ford has to spend at least 103 days to conduct the share repurchases with the total $10 bil-lion cash. The implementation of VEP significantly reduce the time cost in the repurchase process. Moreover, since VEP provided the same deal to all the shareholders, it saved the time and funds spent in the negotiation and premium prices offering. Apart from the normal shareholders and family

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