Ford Bails Out Visteon

Ford(F) outlined a daring agreement Wednesday, under which it will takeover 24 plants operated by its former Visteon(VC) unit with an eye to selling them.

The agreement, which spares Visteon from bankruptcy, will result in up to $1.15 billion in special charges for Ford, including at least $450 million this year. Ford also expects the acquired operations to result in $125 million of operating losses in its fourth quarter and an operating loss of up to $300 million next year.

For Visteon, which warned this month that it faced a funding crunch if it couldn't restructure its relationship with Ford, the transaction is a godsend, sending its stock up $1.13, or 18%, to $7.40 on Instinet. It will cut the company's annual sales from $18.7 billion in 2004 to $11.4 billion in 2005.

For Ford, which has profitability problems of its own and recently saw its debt downgraded to junk at S&P, the deal should cement a key supply line over the next decade, albeit at financial risk. Ford was recently down 17 cents, or 1.7%, to $9.81.

Ford will place into a new corporate entity the 24 Visteon plants, which are located in the U.S. and Mexico, and said it plans to buy out 5,000 hourly employees at the facilities. The new holding company's workforce will technically be leased from Visteon and Ford, with all of the buyouts going to Ford members of the United Auto Workers.

Ford named Frank E. Macher, most recently the CEO and chairman of Federal-Mogul(FDMLQ), as CEO of the holding company. Macher worked at Ford for 30 years and was president of Visteon's predecessor.

Ford agreed to a number of other concessions in addition to the plant transfer. It will forgive about $800 million of Visteon post-retirement obligations, pay up to $550 million toward Visteon's restructuring costs, extend the former unit a $250 million secured loan, and pay up to $300 million to buy the plants' inventory.

In return, Ford gets warrants to purchase up to 25 million Visteon common shares at $6.90 apiece, and continued annual price reductions from Visteon through 2008.

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