Ford to Sell New Shares in Show of Strength

By MATTHEW DOLAN Ford Motor Co. will offer 300 million common shares in a public offering designed to shore up the car maker's cash reserves and keep the company out of bankruptcy as its crosstown rivals struggle to restructure. Ford's move -- which could raise $1.7 billion to $2 billion -- indicates the company believes investors will pin their hopes on it as General Motors Corp. and Chrysler LLC are consumed by uncertain reorganizations. Ford believes raising the cash is worthwhile despite enduring any backlash from current stockholders who fear shares will be diluted. More General Motors, Chrysler Finishing Dealer Cut ListsU.S. Forced Chrysler Creditors to BlinkGM Hires Search Firm for New BoardOpinion: How Ford Restructured Without U.S. HelpComplete coverage at WSJ.com/DetroitThe auto maker's stock sale "will make people more confident about its future and raise confidence that Ford can avoid bankruptcy," said John Casesa, an auto analyst with Casesa Shapiro Group in New York. Unlike GM, Ford has been able to secure an agreement with the United Auto Workers union to lower labor costs by $500 million annually. Ford also cut its debt by $9.9 billion to $25.8 billion as of April 8, and lowered annual cash interest payments by more than $500 million through agreements with debtholders. "We continue to make strong progress on our transformation plan -- gaining retail market share with great new products, improving quality, reducing costs and positioning Ford for a return to profitability," Ford Chief Executive Alan Mulally said in a statement. Ford, facing nearly $10 billion in health costs for retired union workers, now may make up to half its contributions to a trust for such payments in stock rather than cash. But the new terms, worked out with the UAW, also could dilute the company's shares, though they are based on a stock price no higher than $2.20. The company said in a government filing Monday that proceeds from the stock offering are expected to fund its cash obligation to the health-care trust. Ford is taking advantage of a market rally that has sent its shares up nearly fourfold in 11 weeks. Ford shares are trading at the same price as last summer, before the financial crisis worsened and auto sales collapsed. The move to sell shares widens the gap between the company and GM and Chrysler. GM's shares have continued to slide as investors bet the stock will be worthless in an expected bankruptcy. At Chrysler, which filed for bankruptcy last month, not only were the private-equity holders that controlled the company wiped out, but the senior secured lenders, who rarely lose money in a bankruptcy, suffered big losses. The Ford stock offering is set to price after the market closes Tuesday. Typically, companies don't announce offerings unless they are confident they can sell the shares at a reasonable price. If the shares are sold at a price far below Monday's closing price of $6.07, it would be a sign that Ford overreached. In after-hours trading, Ford shares fell 33 cents, or 5.43%, to $5.75. Such stock sales are often done at a discount of about 5% to the market price. As part of the deal, Ford plans to grant the underwriters a 30-day option to purchase as many as 45 million shares in addition to the public offering of 300 million shares. The sale will be led by four of the top underwriters on Wall Street -- Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley. The Ford issue would be the second-largest stock sale by a nonfinancial company this year, after a $2.25 billion sale priced last Wednesday by Dow Chemical Co., according to Dealogic, which tracks stock issues. Ford has 2.9 billion shares outstanding, including 70.9 million Class B shares used by the Ford family to control the company. Last month, Ford posted a net loss of $1.4 billion, or 60 cents a share, for the first quarter, a reversal from net income of $70 million, or three cents a share, in 2008's first quarter. But the loss was lower than analysts expected -- and noticeably better than Toyota Motor Co.'s results -- and a marked improvement from Ford's $5.5 billion loss in last year's fourth quarter. Revenue fell 37% to $24.8 billion. The results reflect in part Ford's strategy: to steal customers from its weakened domestic rivals and separate itself from GM and Chrysler in the minds of the public, investors and lawmakers. Unlike GM and Chrysler, Ford hasn't taken a U.S. handout. Nonetheless, Ford is suffering from one of the worst car markets in history. Its monthly sales have fallen year over year by more than 30% since the start of 2009. Since Mr. Mulally became CEO in 2006, Ford pulled back from its promise to return to profitability in 2009 and has lost $31.4 billion. Ford insists it is on track to break even in its critical North America operations by 2011. —Randall Smith and Ken Brown contributed to this article. Write to Matthew Dolan at matthew.dolan@wsj.com