With GM And Chrysler IPOs AWOL, VEBA Auctions Ford Stock Warrants

Edward Niedermeyer
by Edward Niedermeyer
with gm and chrysler ipos awol veba auctions ford stock warrants

The UAW’s VEBA health care trust fund currently owns 17.5 percent of GM and 55 percent of Chrysler, but with IPO plans still nebulous at both, the fund is short on options for improving cash flow. Remember, the union doesn’t want to own these companies… it would have preferred cash, thanks. But since bailout negotiations allowed the automakers to fund their VEBA obligations with stock and warrants, VEBA has little choice but to monetize them. And while GM and Chrysler limp towards an eventual IPO, VEBA’s 362.4m Ford stock warrants are actually doing pretty well relative to their $9.20 exercise price. So it’s no huge surprise to hear [via Automotive News [sub]] that VEBA is planning on dumping its entire allotment of Ford warrants, in a move that could be worth “at least” $1.27b. And it’s no coincidence that this news comes on the same day that Ford is announcing a $3b debt prepayment, and the day after its sold Volvo to Geely for $1.8b.

By flooding the market with stock, the UAW’s announcement is keeping Ford stock below $14 (which it reached in pre-trading before the market opened today), essentially wiping out any stock price benefit from the debt and Volvo news. In fact, at the time of publishing, Ford’s stock is actually down about 2.5 percent on the day, despite the good brand sale and debt news. Of course it’s impossible to say that this is solely due to the UAW’s warrant auction, but there is sure to be much back-slapping around Solidarity House right now. After all, how often do you get to make over a billion bucks and slap down the stock price of a competitor firm at the same time?

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  • Rnc Rnc on Mar 29, 2010

    I thought that the VEBA was company specific (i.e. Ford's funds were for Ford employees)? Is this not correct, I mean lets say ChryCo goes under, Ford workers are supposed to cover Chyrco's returee's? Did the rank and file agree to this?

  • JeremyR JeremyR on Mar 29, 2010

    Stakes in Ford's competitors notwithstanding, I really doubt the VEBA wants to "slap down the stock price" of Ford, as long as they're still holding those warrants. You'd think they'd want them to fetch the highest price possible.

  • John Horner John Horner on Mar 29, 2010

    The UAW warrants have been on the books and disclosed for a long time. Any smart investors have already included the dilutive effect of those shares into their calculations and considerations. Correlation does not mean cause and effect, but people make just that error all the time, particularly when doing so fits their preconceived notions of how things are. "UAW announces intention to sell Ford warrants. Ford stock dipped today. Therefore, the UAW announcement cause the drop in Ford's stock price." Bzzzt, wrong. Then to add icing on the cake, you presume that this is the exact consequence the UAW wanted. Finally, the UAW doesn't want the price of Ford shares to go down, because when the price goes down, so does the value of those warrants. The idea that the UAW announced its intention to convert the warrants into cash IN ORDER TO DRIVE DOWN THE PRICE OF FORD SHARES is absurd. They haven't converted the warrants to cash yet, and the higher the price of Ford stock, the more the UAW will get.

    • Porschespeed Porschespeed on Mar 30, 2010

      +1 John, Why in the blue f__k would anyone want to dilute the value of their position? Why? 'Splain the logic Lucy, as I do not get it...