Fords Value Enhancement Plan Analysis

Fords mensurate Enhancement excogitate AnalysisFords Value Enhancement Plan aims to align the interests of various shareholders by offering them different options the pickaxe of $20 in currency, additional unsanded customary shares or a compounding of gold and impertinent share. Based on the following analysis, Ford should go ahead with Value Enhancement Plan.Characteristic of VEPThe Value Enhancement Plan has the feature of descent split and share repurchase. Exchanging existing shares for natural shares on a unitary-for-one basis, shareholders are also offered the option to reinvest $20 to perk additional new Ford common shares. In this sense, share hurt would decrease while the number of shares outstanding is going to cast up. According to Fords announcement mentioned in the case, shareholders choosing the share option would receive 0.748 new Ford common shares in lieu of $20 interchange. So, the assemble is equivalent to 1.748 for 1 stock split. However, not al l the shareholders prefer share option. For those who elect cash option, they would receive $20 as though they sell part of their shares, which reflects the feature of share repurchase.Advantages of VEPWith the combined feature of stock split and share repurchase, VEP has its strength.In basis of cash option, since on that point is no favorable things to do with the massive cash reserve, returning the excessive cash allows shareholders to make profitable investment by themselves. Unlike cash dividend, returned cash is revenue enhancemented as capital gains, so it generates tax efficiency for shareholders. In addition, though the price of new Ford shares would decrease, shareholders will not bear any loss, because the reduced price is offset by the cash they receive. But from the companys point of view, they can reduce dividend payment. Companies tend to keep dividend payout ratio constant, so dividend for each new Ford share will decrease because share price falls. For those w ho choose to receive $20 in cash, they keep the same amount of shares before VEP is introduced, therefore, the total dividend payment is going to reduce and to some extent, the force per unit area for increasing dividend level can be relieved a bit. More everywhere, the effect of cash option is similar to that of share buyback, the number of new shares outstanding will reduce thus, earnings per share will increase and it can increase the overall demand for Fords share, which will benefit share price in the pertinacious run.If shareholders elect stock option, they can increase voting power and exercise more control over the company. Also, as we discussed in the cash option, share price will increase, so, shareholders will benefit a handle from holding more new Ford shares.As for the combination of cash and new shares, shareholders can sway part of their money out of the stock to make other profitable investment, and they can also guard their interest in the company. On the one h and, they can enjoy tax efficiency by gainful tax of capital gains for cash received, on the other hand, they can enjoy the profit when share price increases and they can have a say in the firm.VEP is better than cash dividend in terms of tax effect, and compared with share repurchase, it meets shareholders need to remain or increase control of the company. Therefore, based on the analysis, Ford should go ahead with VEP.Possible Choices of Different ShareholdersFord family member will choose stock option because they fate to expand their control in the firm. By supporting VEP, their 40% voting power remains unvarying but their equity in the firm decreases from 5% to 3.6%. If they elect stock option, they hold more common shares, and their voting power is beyond 40%.Institutional investors, such as TIAA-Cref and the Calpers would choose combination of cash and shares. Its obvious that VEP favors Ford family members and dilutes institutional investors voting power, so its hard for them to compete with Ford family members in terms of control even if they reinvest all the $20 cash to buy new Common shares. In this sense, combination of cash and new share is a better choice for them. They can get part of their investment out of Ford stock for good opportunities somewhere else meanwhile, they can remain interest in Ford.A regular outsider shareholder doesnt care about voting power. The purpose of their investment is profit. So, if I was one of them, I would go for cash option, because I would think Ford cant find profitable projects and there are few growth opportunities. By getting money back, I can make good use of it by myself.