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Analysis of Ford's Value Enhancement Plan

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Analysis of Ford's value enhancement plan
Ford's Value Enhancement Plan aims to align the interests of various shareholders by offering them different options - the choice of $20 in cash, additional new common shares or a combination of cash and new share. Based on the following analysis, Ford should go ahead with Value Enhancement Plan.

Characteristic of VEP
The Value Enhancement Plan has the feature of stock split and share repurchase.
Exchanging existing shares for new shares on a one-for-one basis, shareholders are also offered the option to reinvest $20 to receive additional new Ford common shares. In this sense, share price would decrease while the number of shares outstanding is going to increase. According to Ford's …show more content…

Moreover, 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 Ford's share, which will benefit share price in the long 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 lot from holding more new Ford shares.
As for the combination of cash and new shares, shareholders can take part of their money out of the stock to make other profitable investment, and they can also maintain their interest in the company. On the one hand, they can enjoy tax efficiency by paying 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 Shareholders
Ford family member will choose stock option because they want to expand their control in the firm. By supporting VEP, their 40% voting power remains unchanged but their equity in the firm decreases

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