DETROIT -- Ford Motor Co. once again will bail out Visteon Corp., for what the automaker expects will be the final time.
Pending approval, Ford said Wednesday that it will take back 24 parts plants and engineering operations and 17,400 employees from financially ailing Visteon. It will put most of those plants into a holding company and try to sell them. Ford is expected to keep two of the plants, consolidate two others and close a plant.
The deal calls for Ford to hand Visteon $1.9 billion in the form of cash for restructuring, a loan, payment for inventory and forgiveness of obligations for retiree benefits.
Ford will in turn be able to buy 25 million shares of Visteon stock for $6.90 a share. If fully exercised, that would give Ford a 16 percent ownership stake. Visteon stock was trading at about $7.15 a share on the New York Stock Exchange late Wednesday afternoon.
The deal is designed to further distance Visteon from its former parent and make it less dependent.
But it also will slice Visteons revenues by about 40 percent. And Visteon warned on Wednesday that it will have to make more cuts in plants and employees in the United States and western Europe to align its overhead costs with its reduced revenue.
Shedding the plants will knock Visteons global revenues from $18.7 billion in 2004 to $11.4 billion in 2005, the supplier said.
In September Visteon said it would need to restructure its ties to Ford and make other cuts to reverse steep losses, and in March both agreed to a temporary package of relief on wages, parts payments and capital spending.
Visteon sheds Ford workers
Ford Motor still accounts for about 70 percent of Visteons revenue. Visteon leases workers from Ford to work at many of its plants.
The deal, if approved by Ford, Visteon and the UAW, means that no UAW-represented Ford workers will remain at Visteon. The UAW on Tuesday said its leaders were recommending acceptance of the restructuring proposal, and a vote has been scheduled to start on Tuesday. An agreement is expected by Aug. 1.
If approved by all parties, the handoff of plants to Ford is expected to happen on Oct. 1.
Ford will put the operations into an unnamed holding company until they can be sold, consolidated or closed. To entice buyers, Ford will subsidize workers wages at the plants. The new owner can negotiate lower pay under the UAWs Supplemental Agreement wage deal, and Ford will make up the difference to bring wages back up to the level under the unions master agreement.
Visteon will provide the holding company with employees and services, such as information technology and human resources. Ford will reimburse Visteon at cost for those services.
In addition, Ford will:
Ford said the deal will result in special charges to its earnings of as much as $600 million this year. Ford also will have to take special charges to earnings of as much as $500 million from 2005 to 2009 to cover the costs of buyouts for the UAW workers.
In addition, Ford said its expects operating losses from the holding company of $125 million in the fourth quarter of this year and an operating loss of as much as $300 million in 2006. The cost of subsidizing the workers wages is included in the estimated operating losses, Ford CFO Don Leclair said.
Fitch Ratings managing director Mark Oline said the deal is a clear positive for Visteon.
For Ford, however, the agreement was seen negatively.
I would say this is not a good thing, clearly, Leclair told reporters and analysts in a conference call. Its a tough situation that were in.
Leclair said there was no way the automaker could have foreseen the current problems facing the parts industry and Ford when it spun off Visteon in 2000.
Its a change in plans, clearly, but thats something thats required because of the change in circumstances, Leclair said.
Ford is doing now what it should have done years before to prepare Visteon for its initial public offering, said Merrill Lynch analyst John Casesa in a note to clients.
The deal at this stage clearly looks very positive for (Visteon) and negative for Ford, he added.
Credit rating agencies Standard & Poors and Fitch said their ratings on Ford were not affected by the proposal. Fitch revised its outlook on Visteon to positive from negative and said it may raise its rating on Visteon, noting that if the agreement is approved, Visteon would have a dramatically improved operating profile and capital structure.
Macher back at Ford
Ford said it has hired former Federal-Mogul Corp. chairman and CEO Frank Macher to run the holding company as CEO. Macher will report to Greg Smith, Fords president of the Americas. Before heading Federal-Mogul, Macher worked for Ford for 30 years, during which time he ran the automakers components division, which ultimately was spun off as Visteon.
Al Ver, Fords vice president of advanced and manufacturing engineering, will be the holding companys president and COO, reporting to Macher.
Visteon of Van Buren Township, Mich., ranks No. 2 on the Automotive News list of the top 150 suppliers to North America with North American original-equipment automotive parts sales of $11.33 billion in 2004.
|Plants and facilities transferring to a Ford-managed entity|
|Visteon operations and assets to be transferred to the new Ford-managed business entity (In alphabetical order by location):|
|Bellevue||Bellevue, OH||Service Parts|
|El Jarudo||Chihuahua, Mexico||Powertrain|
|Commerce Park South||Dearborn, MI||Administrative/Support|
|Glass Labs||Dearborn, MI||Glass|
|Product Assurance Center||Dearborn, MI||Engineering|
|Visteon Technical Center||Dearborn, MI||Engineering/Support|
|Kansas City VRAP*||Kansas City, MO||Interior|
|Carlite Automotive||Lebanon, TN||Glass|
|Lamosa||Nuevo Laredo, Mexico||Chassis/Powertrain|
|VitroFlex||Nuevo Leon, Mexico||Glass|
|Sheldon Road||Plymouth, MI||Climate Control|
|Sterling||Sterling Heights, MI||Chassis|
|*VRAP: Visteon Regional Assembly Plant|
Reuters contributed to this report.
You may e-mail Dale Jewett at [email protected]