Ford Sells $540 Million of Mazda Stock to Ease Crunch

Nov. 18 (Bloomberg) — Ford Motor Co., reeling from plunging U.S. car sales and a sinking share price, will raise about $540 million selling part of its stake in Japanese affiliate Mazda Motor Corp. to ease cash concerns.

The automaker will sell 20 percent of Mazda tomorrow, reducing its holdings to 13 percent, according to a statement today. Hiroshima-based Mazda said separately that it will buy back up to a 6.9 percent stake for as much as 17.9 billion yen ($186 million). The rest of the shares will be purchased by unidentified “strategic business partners.”

Ford, which rescued Mazda from bankruptcy 12 years ago, is raising additional funds after burning through $7.7 billion in cash during the third quarter. The Dearborn, Michigan-based automaker, General Motors Corp. and Chrysler LLC are seeking a combined $25 billion in U.S. government loans.

“When the airplane is too heavy and you’re losing power, you have to throw out what you can,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, whose parent company manages about $3.1 billion. “It’s a desperate, desperate situation.”

Ford’s U.S. sales plunged 30 percent in October, as the industry heads to the lowest annual tally in 15 years. Ford Chief Executive Officer Alan Mulally, GM’s Richard Wagoner and Chrysler’s Robert Nardelli are scheduled to testify today at a Senate Banking Committee hearing.

“We have depression-level sales, so the cash burn is phenomenal,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan.

Access to Funding

Ford, the second-largest U.S. automaker, said on Nov. 7 it was seeking to boost available funding by as much as $17 billion through 2010. Cash, equivalents and marketable securities for its auto business totaled $18.9 billion on Sept. 30.

Ford also can tap an $11.5 billion revolving credit line, part of $23.4 billion in borrowings made in late 2006.

As part of its effort to bolster cash, Ford plans an additional 10 percent cut in costs for North American salaried employees by the end of January. The automaker trimmed such expenses 15 percent earlier this year. Ford had 22,600 salaried employees in North America as of Sept. 30.

The company also is eliminating performance bonuses for salaried employees worldwide and halting merit-pay increases for such workers in North America.

Ford, along with GMAC LLC and Chrysler, has been shut out of the market for bonds backed by auto loans. Ford’s last public sale of bonds backed by auto loans, a $5.3 billion offering on May 16, cost the automaker 47 times the interest it paid on a comparable sale a year earlier.

Mazda Management Change

Mazda named Takashi Yamanouchi as its new president as of tomorrow, replacing Hisakazu Imaki. The company cited Ford’s stake sale for the change. Chief Financial Officer David Friedman and board member Daniel Morris will also leave the company. Mazda named Kiyoshi Ozaki as the new finance chief.

The Mazda stake sale “allows Ford to raise capital that will help fund our product-led transformation,” Mulally said in the statement.

Ford’s sale of Mazda shares follows GM’s sale today of its 3 percent stake in Suzuki Motor Corp. for 22.4 billion yen.

Ford fell 4 cents to $1.68 at 4:15 p.m. in New York Stock Exchange composite trading, and has tumbled 75 percent this year. Mazda, which has slid 67 percent this year, rose 11 yen, or 6.4 percent, to 184 yen on the Tokyo Stock Exchange.

Long-Term Ties

Ford has owned a stake in Japan’s fifth-largest automaker since 1979. The companies jointly own factories and Ford has based mid-size models such as the Fusion sedan on the Mazda6. The companies have a joint plant in Flat Rock, Michigan, that makes the Mazda6 and the Mustang sports car.

The U.S. company formed an automatic-transmission joint venture with Mazda in 1969 and acquired a 25 percent stake in the Japanese automaker in 1979. Ford took effective control of Mazda in May 1996, raising its stake to 33.4 percent. Suffering from debt and excess capacity, Mazda lost 102 billion yen in the three years through March 1996.

By selling the shares, Ford cedes effective control of Mazda. Ford has used Mazda as a training ground for executives, including North American chief Mark Fields and Chief Financial Officer Lewis Booth.

Ford in May retreated from a goal of a 2009 profit and hasn’t set a new target. It has also withdrawn estimates of how much cash it will use from the $23.4 billion it borrowed in 2006 to pay for job cuts, plant closings and developing new models.

The carmaker sold its Jaguar and Land Rover luxury units to India’s Tata Motors Ltd. for about $2.4 billion in June.

To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net; Bill Koenig in Southfield, Michigan at wkoenig@bloomberg.net.

Last Updated: November 18, 2008 16:16 EST
By Bill Koening and Makiko Kitamura

Source: Bloomberg

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