Ford Vep

1.

VEP.

Combination split+share rep.:

* as no other opportunity to use cash, allows shareholders to choose for themselves what to do with it (after announcement stock price went up)

* returned cash= taxed as capital gains (tax efficiency), thus no disadvantage

* reduced stock price will be offset by cash dividend

company can decrease cash div payment. Increase in stocks will lead to decrease in per stock cash div as price will drop. Those who go for 20 keep same amount of shares before vep, therefore, the total dividend payment is going to reduce and to some extent, the pressure for increasing dividend level can be relieved a bit

* effect of cash option=share buyback (no of new shares outstanding decreases), thus EPS increase= more demand for share= LR share prise goes up

stock option:

* increase voting power/control over company

* also as earlier share price will increase

comb. Cash+new shares (for passive investors):

* use part of money for other investments + maintain share in company

* tax efficiency (tax for capital gains on cash received) + profit when share price increases

vep> cash div because of tax effect and >share rep. as remain/increase of control in company.

Also include psychological effect: how will markets react? Bad anticipation? Looks like good (wall street reaction)

2.

family members hld class B:

choose stock option to increase power, as then have more common stocks+voting power above 40%

if vep their power is unchanged but equity decreases from 5% to 3.6%

-(p.3, middle)ford ownership structure: cash dividend gives liquidity without risk of loosing control

Institutional investor:

Comb of shares+cash (partly reinvest somewhere else + remain interest in ford)

Vep would decrease their voting power to favour of family members, so hard to compete even when reinvest all ($20) to buy new shares

Regular outsider sharehld:

Don’t care about voting power, only about profit, thus as...