Ford to pay a portion of the required $859 million payment to a union health-care fund in stock

Article by Christian Andrei, on August 29, 2010

Later this week, Ford Motor Co. will pay a portion of the required $859 million payment to a union health-care fund in stock. Analysts believe that this indicates a weakness in the shares as the recovery of US auto sales appear to have stalled.

By June 30, Ford has to pay the United Auto Workers Retiree Medical Benefits Trust to finance benefits meant for its former hourly workers.

Brian Johnson, a Barclays Capital analyst, said that Ford can opt to pay up to $610 million in stock under a deal entered with the union last year.

Ford may also prefer to give shares so that it would be able to conserve cash. Investors would perceive Ford's decision to issue stock as a sign that it thinks of its shares as overvalued in a sales environment that has flat-lined, according to the head of its Americas unit.

Johnson, who has a neutral rating on Ford common shares, added that this factor is what investors look at to indicate if management considers their stock to be cheap or expensive.

He explained that cash is used if they see it as cheap but when it's considered expensive, stock is used. When asked to comment on how Ford will pay the trust, spokesman John Stoll didn´t provide details but said that Ford will be able to meet its obligation.

Topics: ford, united states

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