Following today’s trading the Ford Motor Company (NYSE:F) announced that its board of directors has approved the buyback of 116 million shares of the automakers common stock to offset share dilution. The repurchase will also improve shareholder returns for the Dearborn, MI automaker. The company said that it will repurchase up to 103 million shares of common stock and with today’s close at $15.46 this equates to roughly $1.8 billion.
It’s all about Senior Convertible Notes
The potential conversions of its 4.25% Senior Convertible Notes due Nov. 15, 2016 could cause a dilutive effect that Ford Motor Company (NYSE:F) is hoping to avoid with the buyback. Beginning in late November this year and subject to the price of Ford common stock, the automaker will reserve the right to end holders’ conversion rights. If the criteria is met holders will be given 30 days to convert their shares. Ford Motor Company (NYSE:F) also has the right to choose how it will settle conversions. It retains the right to settle with cash, shares, or a combination of the two. The buyback will work as a safety net to dilution in the event that Ford chooses to settle conversions through the issuance of shares.
In 2012, Ford Motor Company (NYSE:F) offset the dilutive effect of share-based employee incentive compensation by making an open market purchase of 11.7 million shares of Ford common stock. It did the same in 2013 by purchasing 13.3 million shares and announced today that it will purchase up to 12.6 million shares for the same purpose this year.
Ford CFO speaks
In addition to his above remarks, Bob Shanks, executive vice president and chief financial officer added that, “The strength of our cash generation gives us confidence to take these actions to enhance shareholder returns. With these actions, we will reduce our diluted shares by about 3 percent.”
Ford Motor Company (NYSE:F) is not obligated to carry out or even begin this repurchasing plan and it could be suspended at any time. That said, it’s expected that the company will complete the announced plan by year’s end through a series of periodic purchases on the open market. At the end of this April, the company had 3,883,470,682 shares of Ford common stock outstanding and 70,852,076 shares of Ford Class B stock outstanding.