Ford Motor Company has announced plans to conduct a repurchase program for up to approximately 116 million shares of its own common stock. The initiative, approved by the company’s board of directors, is in line with the firm’s capital strategy to “take anti-dilutive actions to enhance shareholder returns” and is being conducted to “offset share dilution and help improve shareholder returns”, according to Ford.
In summary, the program will offset the dilutive effect of potential conversions of Ford’s 4.25% Senior Convertible Notes due November 15, 2016, as well as share-based employee compensation granted in 2014. According to Ford, the combined share repurchases will reduce diluted shares by about 3 percent. At the closing sale price of Ford common stock of $15.46 on May 8, the program is the equivalent of a $1.8 billion share repurchase program.
Ford said that it will repurchase up to 103 million shares to offset the dilutive effect of potential conversions of its 4.25% Senior Convertible Notes due November 15, 2016. Beginning November 20, 2014, and subject to certain limitations relating to the price of Ford common stock, the company can terminate holders’ conversion rights. In that event, holders would have 30 days after notice to convert their shares. Ford has the right to settle any conversion with shares, cash or a combination of shares and cash. Ford’s share repurchases under this program are intended to offset the dilutive effect of any shares Ford elects to issue to settle these potential conversions.
In addition to efforts to offset conversion of the Senior Convertible Notes, Ford will repurchase up to 12.6 million shares to offset the dilutive effect of share-based employee incentive compensation granted in 2014. Ford offset the dilutive effect of share-based employee incentive compensation granted in 2012 and 2013 through open market purchases of 11.7 million and 13.3 million shares of Ford common stock, respectively.
“These actions are consistent with our overall capital strategy to take anti-dilutive actions and position ourselves to further reduce Automotive debt,” said Bob Shanks, executive vice president and chief financial officer. “The strength of our cash generation gives us confidence to take these actions to enhance shareholder returns. With these actions, we will reduce our diluted shares by about 3 percent.”
Ford will repurchase the approximately 116 million shares periodically in the open market, with the program expected to be concluded in 2014. As of April 30, 2014, there were 3,883,470,682 shares of Ford common stock outstanding and 70,852,076 shares of Ford Class B stock outstanding. To note, the repurchase program does not obligate Ford to repurchase any number of shares and may be suspended at any time or from time to time.
Those concerned about the impact the program will have on its financial should know that on April 25, Ford reported that its Automotive operating-related cash flow was $1.2 billion in the first quarter. The company ended the first quarter with Automotive gross cash of $25.2 billion, exceeding debt by $9.5 billion, along with a strong Automotive liquidity position of $36.6 billion, an increase of $400 million from year-end 2013.