Trust Fund Plans to Take Ford Gains
DETROIT (
) -- This may be a good time to take some profits on
Ford
(F) - Get Report
, at least if you want to ensure you can pay future medical bills.
On Monday, Ford said the United Autoworkers Retiree Medical Benefits Trust has commenced a second public offering of up to 362.4 million warrants, all of its holdings. The warrants represent the right to buy Ford shares at $9.20 a share.
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The VEBA formally acquired the warrants from Ford on Dec. 31, 2009, when it assumed the obligation to provide retiree health care benefits for Ford employees and eligible spouses and dependents. The deal was negotiated in early February 2009, a month when Ford shares traded between $1.86 and $2.16 a share.
Late Monday morning, Ford stock was trading down 10 cents at $13.76, likely a reflection of anticipated dilution resulting from the sale. The market has been generally aware of the pending sale, however, and some analysts have built it into their models.
The warrants expire on Jan. 1, 2013. Selling a warrant entitles the owner to take possession of Ford shares representing the gap between $9.20 and the stock price. For instance, selling when shares cost $13.70 would entitle the seller to $4.50 worth of Ford stock, about a third of a share. Thus, the warrants are currently equivalent to about 120 million shares. About 3.4 billion shares are outstanding.
With the sale ongoing, Ford cancelled a meeting with analysts that had been scheduled for Wednesday morning due to a quiet period surrounding the warrant sale. CEO Alan Mulally, Controller Bob Shanks and Assistant Treasurer David Brandi had been scheduled to meet with analysts on Tuesday.
Despite a 335% increase in 2009 and a 35% increase in 2010, Ford shares continue to have upside, according to UBS analyst Colin Langan.
In a recent report, Langan raised his estimate for the shares from $13 to $15. "We continue to see some upside due to Ford's ability to conquest market share," he wrote. "Moreover, we expect that Ford will benefit from increased pricing on new products, an improved balance sheet through cash flow generation, and significant operating leverage on its fixed cost base."
Langan said it's too early to say whether Ford can take share from
Toyota
(TM) - Get Report
, which has strong buyer loyalty, but he anticipates 2010 and 2011 share gains from
GM
and
Chrysler.
-- Written by Ted Reed in Charlotte, N.C.
