By NORIHIKO SHIROUZU
Staff Reporter of THE WALL STREET JOURNAL
DEARBORN, Mich. -- Ford Motor Co., whose shares have lost more than
10% of their value since the Firestone tire recall began last month, said
Thursday it will buy back as much as $5 billion of common and Class B
stock in an apparent effort to shore up the share price.
Announcing the buyback, Ford's chief financial officer also warned that
widespread protests in Europe over energy prices could affect
production there and weigh on the company's third-quarter results.
Third-period earnings already came under pressure after Ford shut
down several U.S. truck factories to free up tires for the recall.
Before the Bridgestone/Firestone Inc. recall, launched Aug. 9, Ford had
signaled it was likely to undertake a buyback to complete a $10 billion
cash distribution to shareholders promised in the spring. Ford gave
shareholders $5.7 billion of that total in a complex recapitalization in
"Based on our confidence and our financial strength, we have increased
the total planned cash distribution by $700 million," Henry Wallace,
Ford's chief financial officer, said in a press release to announce the $5
billion buyback, which the company expects to substantially complete by
the end of 2001.
Ford shares rose following the stock-buyback news; at 4 p.m. in New
York Stock Exchange composite trading, they were up 56 cents at
$25.81. On Aug. 9, the day the tire recall was announced, Ford shares
closed at $29.50.
Some on Wall Street had feared Ford could delay the buyback
announcement because of the potential for negative publicity if the
company appeared more concerned about its shareholders than about
addressing the problems of its customers during the tire recall.
Most of the 6.5 million recalled Firestone tires were mounted on Ford's
Explorer sport-utility vehicle, one of the company's best-selling vehicles.
Ford Chairman Bill Ford Jr. said Thursday the company's board
discussed the pros and cons of announcing the repurchase now "at
some length" this week, and concluded that delaying the move wasn't
necessary financially, and could have caused investors to question
"whether there's something else, some other issue." Mr. Ford said the
company won't be diverting money toward the buyback that it would
otherwise use to address the tire problem.
Federal safety regulators have counted 88 deaths allegedly related to
accidents involving Firestone Wilderness, ATX and ATX II tires whose
tread separated at highway speeds.
Since the recall was announced, at least another five fatalities have
occurred that are allegedly linked to Firestone tire failures.
"What this share buyback signifies to me is Ford is more interested in
taking care of their shareholders and boosting shareholder value than
they are in addressing safety problems of their customers," said Sean
Kane, president of Strategic Safety, a group researching the tire
problem for attorneys who are suing Ford.
Ford's Mr. Wallace said the company is doing "everything in our power"
to help replace recalled tires on its sport-utility vehicles. While the tire
debacle is financially draining, Mr. Wallace said the company is "in good
shape" and can easily afford the buyback.
Nick Lobaccaro, auto analyst at Lehman Brothers, reckoned that Ford
stock's recent weakness demanded an early buyback. "If anything, the
weakness in the stock price argued more forcefully for a buyback," he
Mr. Wallace said analysts' consensus estimate for third-quarter earnings
was "reasonable." Analysts polled by First Call/Thomson Financial expect
Ford to earn 52 cents a share in the third quarter, compared with an
adjusted 54 cents a share a year ago.
He warned, however, that "the real unknown is what happens over the
next two weeks in Europe."
While Ford's plants in Europe haven't yet been affected by the protests
over fuel prices, which have led to blockades in several countries, the
plants are "beginning to creak a little bit," Mr. Wallace said.
The fuel shortages could lead to parts shortages that may force its
factories to shut down.