Ford may make part of its required $859-million payment to a union health care fund this week in stock, a sign of potential weakness in the shares as the U.S. auto sales recovery stalls, analysts said. Ford must pay the UAW Retiree Medical Benefits Trust by Wednesday to fund benefits for former hourly workers.
Ford must pay the UAW Retiree Medical Benefits Trust by Wednesday to fund benefits for former hourly workers.
Ford has the option to pay as much as $610 million in stock under an agreement reached with the union last year, and the second-largest U.S. automaker may choose shares in order to conserve cash, said Brian Johnson, a Barclays Capital analyst.
If Ford issues stock to pay the fund, investors may see it as a sign the company considers its shares overvalued in a sales environment that the head of its Americas unit described as "flat-lined."
"Investors look at this as an indication of whether management sees their stock as cheap or expensive," said Chicago-based Johnson, who has a neutral rating on Ford common shares. "If it's cheap, they use cash. If it's expensive, they'll use stock."
John Stoll, a Ford spokesman, declined to comment on how the automaker will pay the trust.
"We'll meet our obligation," Stoll said in an interview. "We're not in a position to talk about an amount or how exactly we'll pay for it."
Ford used cash for its first payment of $610 million in December and prepaid an additional $500 million with its shares in the midst of a fourfold annual gain.
The company said at the time that it paid in cash because the stock's volume-weighted average share price in the period before the payment, which determines the price of the stock it issues to the trust, was $9.13, less than the $10 the stock closed at on Dec. 31.
The stock closed June 25 at $10.75, a 6.2% discount to the average of about $11.46 in the previous 30 trading days. The company has 3.34 billion shares outstanding.
The shares fell 32 cents, or 3%, to $10.43 Monday.