Value Enhancement Plan for Ford: Boosting Share Value and Restructuring Capital

Running head: FINANCE
Written presentation
Introduction
(VEP) or Value Enhancement Plan, is a plan that was proposed by the Ford
management to boost the company’s current share value, as it was declining in spite of the
rising value of market index S&P 500 and the Auto index.
The (VEP) was made to raise the value of the company’s share and restructure its capital. The
high cash reserves and low potential of future acquisitions were the main reason behind the
falling share price of the shares. However, the Enhancement Plan benefited all at the same
time, the shareholder, the management and the Ford Family; where, the excessive cash that
was generated by Ford company during the fiscal year was used in providing cash returns to
the investors with an option to increase their exposure in the company.
Repurchasing of the shares was not used by the organisation in order to reduce its cash
holding
 The repurchasing of shares is an adequate option, that enables the companies to
acquire shares that had been floating in the market. This repurchasing of shares
provided the organizations with an option to improve and optimize their investment

FINANCE
1
position. However, the option was not adequate for the company, as Ford Family was
not willing to lose their voting power in the management. This voting Power allows
the Family to make decisions regarding the investments and future progress of the
company. The repurchase of shares would directly affect the voting condition of Ford
Family, which will negatively affect the progress of the company (Guenther).
The agency issues that concern with the large shareholders and Ford Family
 The high accumulation of cash increases the agency issues, where the management
was unable to utilize the available resources for generating higher growth in the
future.
 The accumulation of high cash reserve also affects the share valuation place a major
concern for the shareholders and Ford Family. The declining share value of the
organization is projecting a downtrend, which states about the changing demand and
perspective of the investors.
 High cash reserves projected low efficiency of the management as they are not
adopting adequate investment options, which can generate higher returns in the long-
run. The shareholders of the company were the reason to be concerned regarding
future prospect, while Ford Family was worried about the voting rights and devalued
share price.
Is there a risk of takeover of Ford?
 The above figure illustrates the financial position of Ford for the fiscal year of 1999,
which indicates that Ford cannot be acquired by another organization, as they have
huge cash reserves that can counter the takeover.