May 8 (Bloomberg) -- Ford Motor Co. said it will repurchase $1.8 billion of its shares to reduce dilution from recent stock grants to executives and to offset shares that may be issued to holders of convertible debt.
The buyback amounts to 116 million shares and will be concluded in 2014, the Dearborn, Michigan-based company said yesterday in a statement. Ford in March granted 882,352 in restricted shares, worth $13.8 million, to Chief Executive Officer Alan Mulally, who is retiring July 1.
The second-largest U.S. automaker, which restored its dividend in 2012 after a five-year hiatus, is rewarding shareholders after issuing stock to its executives for turning around the automaker. Ford has earned $42.3 billion in the last five years after losing $30.1 billion from 2006 through 2008. The company made the announcement ahead of its annual meeting scheduled to take place today in Wilmington, Delaware.
“These actions are consistent with our overall capital strategy to take anti-dilutive actions and position ourselves to further reduce automotive debt,” Chief Financial Officer Bob Shanks said in the statement.
Ford said it is repurchasing as many as 103 million shares to offset dilution from possible debt conversions of about $883 million in 4.25 percent senior convertible notes due Nov. 15, 2016. The company said it also has limited rights to terminate the conversions on that debt in November of this year and the automaker can settle the conversions with shares or cash.
Ford is buying back an additional 12.6 million shares to offset the dilutive effect of stock issued through its employee incentive compensation this year, which includes the shares awarded to Mulally. Ford said it took similar action in 2012 and 2013 to repurchase shares to offset executive awards.
Mulally, 68, said last week that he plans to retire six months earlier than planned, to make way for his successor, Mark Fields, Ford’s chief operating officer. Mulally, who came to Ford from Boeing Co. in 2006, engineered a turnaround at the automaker by globalizing new models, cutting costs, boosting technology and overhauling the lineup with fuel-efficient offerings such as the Fiesta subcompact.
Ford boosted Mulally’s compensation by 11 percent last year to $23.2 million as the automaker posted record earnings in North America and Asia. Mulally’s total payout since coming to Ford exceeds $300 million.
The automaker, beset by bad weather and rising recall costs, saw first-quarter net income fall 39 percent to $989 million, less than analysts’ estimates. It has asked investors to be patient as its spends heavily this year to roll out a record 23 new models worldwide, which will lower operating earnings to between $7 billion and $8 billion, from $8.8 billion in 2013. Ford has promised the new model investment will payoff in 2015.
The company’s stock rose as much as 1.1 percent in extended trading yesterday and had advanced 0.2 percent for the year through the close in New York.
“This is a positive sign that should help the stock over the long term,” said Joe Phillippi, a veteran auto analyst and president of AutoTrends Consulting in Andover, New Jersey. “Some shareholders will say: ‘Increase the dividend.’ And if the earnings numbers continue to roll, some free cash flow will be set aside for increasing the dividend.”
Ford is financing the buyback through its strengthening cash flow, which it reported was $1.2 billion from automotive operations in the first quarter. The automaker ended the first quarter with $36.6 billion in automotive liquidity, up $400 million from year-end 2013.
The company said it ended the first quarter with $15.7 billion in automotive debt.
“The strength of our cash generation gives us confidence to take these actions to enhance shareholder returns,” Shanks said in the statement. “With these actions, we will reduce our diluted shares by about 3 percent.”
As of April 30, Ford said it had almost 3.9 billion common shares outstanding.