This report will detail how the Ford VEP plan added value by satisfying the needs of the various shareholder types within the context of the 2000 market environment.

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Ford plan: Value Enhancement

Recognizing that firm market value is shaped by the investor’s expectations of the firms’ prospects, and that the market is composed of a variety of shareholders, with differing criteria of how value is derived, this report will detail how the Ford VEP plan added value by satisfying the needs of the various shareholder types within the context of the 2000 market environment.  

Corporate Strategy: the enhanced value for Ford Motor Company

With a corporate strategy that was refocusing attention on automotive and financial services the Visteon spin-off would allow Ford to negotiate the lowest cost deals with any parts supplier, which would lead to lower costs and increased profit margins.

Ford must have also recognized that the surplus $23 million of cash was reducing profitability ratios like return on assets and return on equity which in the mature and competitive automotive industry would be quite significant.

Furthermore in the time period’s marketplace, which was investing in high tech and the dot com’s, it was unlikely that Ford could identify a significant enough sized ‘project’ (similar in significance to the purchases of Hertz, Jaguar, Land Rover or Volvo) which would achieve an expected rate of return of 8.4% (Table 1) and fit Ford’s current strategy.

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A PVGO analysis (Table 2) also shows Ford shares have a further $12.69 per share growth potential. So Ford is wise not to provide a special dividend payout as this will weaken PVGO via an increase in the payout ratio as well as a decrease in long term ROE. But for this potential to be realized Ford will still need to highlight what performance factors can achieve this potential.  

External shareholder

Even though Ford was strategically refocusing, had historically strong cash flows, increasing sales and a healthy 4% ...

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