Ford Motor Co.’s quest to stabilize its struggling North American operations could prompt management to take the company private, buying it time to deal with declining sales and mounting financial woes.
Should the auto maker decide to go down that road, it likely would emerge healthy in four to five years, says Gerald Meyers, a professor of management at the University of Michigan's Ross School of Business and former chairman of the now-defunct American Motors Corp.
While saying it is “unlikely” Ford will go private, Meyers tells Ward’s now would be the ideal time.
Indeed, Ford may be moving closer to such an alternative, according to a report in USA Today, which quotes a source “with direct knowledge of such discussions” as saying the Ford “family is willing to consider anything.”
Industry rumors of such a move have been rife since Ford Chairman and CEO Bill Ford earlier this month hired former Goldman Sachs banker Kenneth Leet to explore company options following a $1.4 billion first-half loss.
The Ford family, which holds a 40% controlling interest in the No.2 U.S. auto maker, has been unwilling to confirm such a possibility.
But Bill Ford tells BusinessWeek, in a story regarding a possible linkup with the Renault-Nissan Alliance posted on the magazine’s website Wednesday night, the Ford family “will not stand in the way” of whatever is required for a recovery.
Meyers says the advantages of taking Ford private are pretty straightforward. “It would allow the company to consider wild and wonderful ideas that should be considered without the white hot light of media and Wall Street shining down on them,” he says.
“And they wouldn’t have to answer a lot of questions and make presentations to shareholders and disclose material events.”
A Ford spokesman declines comment on the possibility of Ford retreating from the public eye and that of Wall Street, referring to such reports as “speculation.”
But others with close ties to the auto industry are not so quick to dismiss the idea.
Going private is “always a possibility when there’s a lot of money around and the equity value of the company is relatively low,” says David Cole, chairman of the Center for Automotive Research in Ann Arbor, MI. “You can’t buy companies with this type of asset base. With the price of the stock (so low), it’s an amazing buy.”
Ford’s stock closed Aug. 23 at $7.76 a share. At that price, the auto maker could be taken private at the relatively low price of $13.34 billion, published reports say. The Ford family’s controlling stake is mostly through 70 million shares of so-called Class B “super-voting shares.”
Not having to deal with the scrutiny and demands of shareholders would be a benefit to Ford, many analysts say. And shareholders also would profit.
“Shareholders would be bought out first at a pretty good price,” Meyers says. “They’re not going to kick in for $6 or $7 a share, but at $8 or $9, they would be glad to get their money out.”
A major caveat is that the Ford family would have to relinquish much of the control it enjoys today. “The Ford family would have to roll over and accept the serious situation and give up control,” Meyers says.
Whether Bill Ford decides an alliance with another car company is the best fit, or he takes the company private or chooses another route, most analysts agree the auto maker eventually will overcome its problems and emerge as a stronger, albeit smaller, company.
“I have every confidence there will be a Ford 50 years from now,” Meyers says. “It’s just a matter of who the management will be and what size (the company) will be.”