Monday, August 18, 2008

Ford Brilliance or Stupidity?

Ford (F) announced last Friday that they will issue $500 million dollars worth of their own shares enabling them to buy their way out of problems that Ford Motor Credit has found itself in. (Read sub prime loans to some extent) No mention in the public announcement of what this will do to EPS. But if the stock is trading around $5.11 that’s approximately 100 million shares. But does anyone do math with Ford stuff anymore? They have approximately 2.26 Billion shares outstanding so what’s another 100 million.

The debt to be repurchased will be either on the open market or through private deals. Will Ford be able to negotiate substantial deals with panicky debt holders and perhaps build in some gains somewhere into the future?

Will the shareholders realize that Ford may do a reverse stock split and roll up much of the float? Will the panicky debt holders who are probably institutions agree to buy the stock which may have an upside and get out of what is clearly terrible looking paper and get their books in balance?

Who wins? Who loses? Goldman Sachs (GS) that’s who! They will be handling the sale according to Ford. For investors the question is “Have you driven a Ford lately”