Ford Motor Co's Value Enhancement Plan: A Financial Analysis Report

This report examines Ford Motor Company's Value Enhancement Plan (VEP), which aimed to boost the company's share value by addressing high cash reserves and low acquisition potential. The VEP focused on providing cash returns to investors while avoiding stock repurchases due to concerns about diluting the Ford family's voting power. The analysis explores agency issues related to excessive cash holdings, the risk of a takeover, and the viability of one-time cash dividends. The report concludes that while the VEP aimed to enhance share value, Ford's share valuation in 2018 suggests limited success. The document also references and includes bibliography.

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

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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.

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 There is no option for the takeover of Ford, as the operations of the company have
increased in value over the period of time. Moreover, the voting rights of the company
are a in control of Ford Family, who will never allow the takeover to be happened.
 Furthermore, the company’s reserve is held and accumulated for the acquisition
process, which was being conducted by the management in previous year. However,
due to the low options, the company was able to increase their cash reserves
exponentially and obtain 40% in cash reserves of the total balance sheet value.
Large one-time cash dividends in not an option for enhancing the value
 The one-time cash dividend is considered adequate option for many companies, as it
will attract adequate investors for the company. However, the cash dividend will not
solve the problems of the organization. moreover, the cash dividends will increase the
overall dividend yield conditions of the company, which would increase the demand
from the shareholders and force the management to continue with the high dividend
payments.
 Moreover, there are many investors who purchase shares of the companies for the
duration of cash dividend payments after which they exit the shares, which increases
the volatility in share value. Therefore, with the one-time cash dividends, the overall
measure that was aimed by the company to enhance the value of the shares will not be
fulfilled. However, the organization after using the value enhancement method would
eventually help in improving the share price. The current share valuation of Ford in
2018 is mainly at the levels of 8.36, which indicates that the value enhancement plan
did not work for the organization (Isike, Christopher and Alice).

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References and Bibliography:
Guenther, David B. "The Strange Case of the Missing Doctrine and the Odd Exercise of
Ebay: Why Exactly Must Corporations Maximize Profits to Shareholders." Va. L. & Bus.
Rev. 12 (2017): 427.
Isike, Christopher, and Alice Ajeh. "Stakeholder Engagement as a Core Management
Function: Analysing the Business Value of Stakeholder Engagement for Nigerian Business
Organizations."
Min, Geeyoung. "The SEC and the Courts' Cooperative Policing of Related Party
Transactions." Colum. Bus. L. Rev.(2014): 663.
Tijerina, Louis, et al. Repeated measures testing of driver collision warning. No. 2015-01-
1413. SAE Technical Paper, 2015.