Essay on Ford value enhacement plan

1) Section 351: Since Individual will be in control (80%+ ownership) of future corporation, he will not incur a taxable event

If Ms. Jameson chooses stock options for her compensation, she will not need to pay taxes until she actually exercises them and sells the shares. At that point, gains on the shares will be taxed at either ordinary tax rate[3] or at capital gain tax rate[4], depending on whether she has held the stock for less than or more than one year after exercising the options. If taxes are considered, the value of option after tax will decrease. In the case that Ms. Jameson holds stocks for less than 1 year, she risks to her income tax rate that could be changed at the fifth year. While there will be no risk regarding tax rate, if she hold the stocks for more than 1 year. The latter case, however, increases risk regarding the share price in the future, in which it will have an effect on her capital gain or loss.

Phyllis and Freddie can redeem the preferred shares at any time; the preferred shareholder still has control over the assets. If they qualify as a qualified Small Business Corporation, one can multiply the number of capital gains exemptions by increasing the number of taxpayers who are shareholders. In addition, Phyllis and Freddie can transfer the asset to the children to who they would like to appoint from their company. The growth in value of which will not be subject to a challenge of their Will under the Wills Variation Act. It can prevent future family disputes and help the estate equalization. When Phyllis and Freddie transfers the preferred shares to their children, it creates the commitment for the children to take over the ownership of the company. Phyllis and Freddie can also maintain control of the

Hampton decided to buy back their stock because they were confronting many dissident stockholders at the moment. Besides, the company had always maintained a conservative financial policy. Having to spend 3 million on the repurchase affected their cash balance, as well as their payable accounts, that in turn it increases creditors and suppliers claims against the company.

There are situations where once the 351(a) factors are met, a transferor will transfer stock received to someone outside of the control group, and then the requirement after might not be met. A transferor might distribute some of the control received to the shareholders after the requirement based on 351(c). This type of distribution can be taxable to both the shareholders and the distributing

In the open market share repurchase, the firm may or may not declare the repurchase. Depending on the market condition and the firm’s position in the industry, the firm can decide when and how many

This option involves distributing the $3 billion to shareholders in dividends. The dividend would be issued as a once-off payment in order to prevent an expectation of receiving recurring dividends. Providing $3billion in dividends will result in the share price declining to $48.63 from $61.53 with the earnings per share (EPS) declining to $0.60 (see appendices 1.2 & 4). Despite this however, investors should be indifferent as the amount received as a dividend would negate

As for the combination of cash and new shares, shareholders can take part of their money

Ford Motor Company is America's one of the largest car manufacturer and seller. In year 1987 it faces an external business environment change in the form of new warranty policy announcement by its major competitors General Motor, which changes the current philosophy of warranty in U.S car market. This policy change may have implications not only on Ford’s sales and market share but also on various departments within organization (such as manufacturing, quality assurance, parts and service, and extended service plans) and their dealer network. In answer, Ford executives have to respond through a best suitable course of action by carefully analyzing the current market variables.

Management considering share repurchase program should weigh its benefit of financial discipline, efficient corporate strategy implementation and utilization of tax shield against the downside of cost of financial distress. It’s not the possibility of bankruptcy that causes concerns among equity holders regarding extent of leverage but the direct costs (legal, liquidation, administrative etc.) and indirect costs (deteriorated corporate image, management time and attention, agency costs of value-destructing investment, distress asset sales etc.). Exhibit 4 lists the key assumption inputs of approximating quantitative firm value/ equity value accretion. Levering UST to a larger extent by adding $1,000m does increase firm value.

Under the circumstance of an IPO, tranches C, D and E will convert to common at their negotiated prices while A & B will be redeemed.

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.

The market shares and stock prices of Ford have been declined in recent years. No further steps have been taken by the Ford

The repurchase program increases the shareholder’s value. This is because of a rise in the price of the shares of the original shareholders.

Objectives |Metric |2009 |2010 |2011 |Target | |Revenue Growth |Annual Rate of Growth |-19.02% |10.90% |5.67% |5.5% - 6.0% | |Operating Profit Growth |% EBIT/Sales |0.72% |1.11% |1.13% |= or >1.13% | |Solvency |Net Profit + depreciation/Total Liabilities |1.4% |4% |12.3% |13 -14.5% | |