The United Auto Workers union is hoping to raise at least $1.3 billion for its retiree health care trust fund by selling all of its 362 million warrants for Ford Motor Co. stock.
The trust will auction the warrants, which were issued in December 2009 as part of contract talks with the union, starting at 8 a.m. Tuesday, Ford said Monday in a statement. The automaker and union agreed to set up the trust to help Ford remove retiree health care costs from its books while it was in financial trouble in 2007.
The trust began paying health care costs for about 200,000 retirees and their spouses nationwide on Jan. 1, and Ford said it is saving the company roughly $500 million per year.
The trust set a minimum price for each warrant at $3.50. Each warrant gives the holder the right to buy a Ford share at $9.20.
The combined $12.70 that a buyer would pay for both the warrant and a share of Ford stock is 8 percent below Ford’s closing stock price on Friday of $13.86 a share.
Ford shares fell 20 cents, or 1.4 percent, to $13.66 in midday trading Monday.
Shelly Lombard, credit analyst at the New York bond research firm GimmeCredit, said the UAW trust is wise to sell the warrants now, since Ford’s stock has been on the rise.
“The economy’s improving and Toyota’s on the ropes, so the sense is that things will only go up from here,” she said. “But having said that, it just makes perfect financial sense to take some money off the table. You never know what the market’s going to do.”
In the past 16 months, Ford shares have grown more than 10 times in value as the company avoided bankruptcy protection and government aid, won accolades for its vehicle quality and reported a full-year profit for 2009.
The automaker’s shares closed as low as $1.26 on Nov. 19, 2008, the lowest price in more than 27 years. But on March 18 they hit an intraday price of $14.54, the highest level since January of 2005.
Ford also said Monday it will pay $3 billion to a revolving credit line that is due in 2013. The credit line will have a $3.7 billion balance after the payment, which will be made April 6.
Ford continues to be saddled with high debt. After the $3 billion payment, the company will still owe about $32 billion overall. Chief Financial Officer Lewis Booth said in January that the company has “an uncompetitivebalance sheet” and will work on cutting debt this year, but he wouldn’t say what steps it will take.
The Dearborn, Mich., automaker mortgaged all its assets in 2006 and 2007 to secure a $23.4 billion credit line to cover its restructuring costs and losses. The money enabled Ford to avoid taking government aid and entering Chapter 11 bankruptcy protection like its crosstown rivals, General Motors Co. and Chrysler Group LLC.
In January the company posted a $2.7 billion annual profit for 2009 and said it expects to stay in the black in 2010. It was the automaker’s first annual profit in four years.
May 14th, 2010 at 11:40 am
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