Case ID: 201079
Solution ID: 2937
Words: 1164
Price $ 45

Ford Motor Companys Value Enhancement Plan A Case Solution

Case Solution

In April 2000, Ford Motor Co. introduced a investor Value Enhancement Plan (VEP) to considerably recapitalize the firm's possession structure. Ford had gathered $23 billion in cash reserves and underneath the VEP would return around $10 billion of the cash to investors. In return for each share presently held, the plan will give stockholders one new share plus the option of receiving $20 either in cash or additional new Ford common shares. Investors choosing to get cash could be taxed on these distributions at capital gain rates. Among-st other things, the plan provided a method for that Ford family to acquire liquidity without needing to dilute their 40% voting interest (despite the fact that they own only 5% from the shares outstanding). Students must wrestle using the following questions: Why was Ford suggesting this transaction rather than a conventional share repurchase or perhaps a cash dividend? How did the interests from the Ford family factor into this decision, and just what did the transaction imply concerning the future participation from the family in the organization? Why was Ford disbursing such a lot of cash only at that particular time? Did the distribution signal a general change in the business's appetite to make purchases or future capital costs? If investors with each other chosen to get under $10 billion in cash, wouldso would Ford distribute the rest of the cash?

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