Ford Motor Co. remains unlikely to be taken private, but buyout firms are circling the automaker’s Premier Automotive Group, which consistes of four brands: Aston Martin, Land Rover, Jaguar and Volvo.
Sources told PE Week that Citron Capital of San Francisco has been working on an offer for Land Rover. Meanwhile, Apax Partners is considering whether to purchase Aston Martin. And earlier press reports suggested that One Equity Partners is interested in all or part of the unit, with OEP partner and former Ford CEO Jacques Nasser leading the charge.
“Our firm policy is that we don’t comment on any deal—pending, contemplated or otherwise,” says Jonathan Tower, managing director of Citron.
Apax spokeswoman Laura Brightsen declined comment.
The official word from Ford is that only the Aston Martin unit is for sale, but former Goldman Sachs pro Ken Leet—who was retained by Ford a month ago as a strategic advisor—apparently is open to additional offers.
Ford was expected to announce a restructuring Friday morning, after PE Week’s deadline to go to press, although it was not certain that divestitures would be disclosed.
Ford Motor is the latest American corporate icon to be batted about as a possible privatization target, along with General Motors (GM) and Microsoft Corp. Ford has been added to the “will it or won’t it” discussion because it fits many criteria of a traditional leveraged buyout. It is a longstanding industrial company in acknowledged need of financial salvation, with a stock price that has not traded above $9 per share yet in 2006.
Also, its founding family holds a 40% ownership stake, and the $15.4 billion market cap is easily manageable for the burgeoning number of LBO firms with fund sizes in excess of $10 billion. And, it presents the type of challenge that certain firms might find irresistible.
“There are certain brands that might cloud an investor’s objectivity,” says an East Coast investor who prefers to remain anonymous. “Imagine if you were the one to save Ford.”
The temptation, however, might not be enough to overwhelm the myriad problems with a possible Ford buyout. First, who could step up to but the entire group? One Equity Partners is among those to have expressed interest in Aston Martin, but it is unlikely that the firm would be involved in a company-wide acquisition. Not only does it not have enough fund capital to be a major participant, it is unlikely that either the Ford family or board would allow OEP partner—and fired Ford CEO Nasser—to regain control of the company.
Meanwhile, Clayton, Dublier & Rice has strong ties to Ford based on its lengthy negotiations to spin out Hertz, but it never indicated interest in anything larger. The Carlyle Group, Blackstone, Kohlberg, Kravis & Roberts and Apollo Management all could be players just based on their size and sector expertise, but none seems to be making serious inquiries.
One logical buyer would be turnaround legend Wilbur Ross, whose last salvage job was the union-laden U.S. steel industry. Ross, however, tells PE Week that he’s not interested. His firm—which recently sold a majority ownership stake to Amvescap—has made several automotive acquisitions, such as Collins & Aikman Europe, but would rather be a supplier to OEMs than an actual OEM itself.
Moreover, Ross argues that possible Ford buyers face two distinct dangers. First, there are legitimate questions as to whether the company can handle any extra debt. Ford is currently carrying more than $153 billion in debt, which dwarfs Toyota’s $91.63 billion or GM’s $45.38 billion.
Also, prospective buyers don’t know what type of union contracts they would be managing. The United Auto Workers contract comes up for renewal next year, and UAW is likely to follow its past tact of “pattern negotiating.” What this means is that it reaches a deal with one OEM, after which it demands near-identical terms with other OEMs. LBO firms purchasing Ford in 2006 would be unable to predict many labor costs ahead of time, while those buying in after a deal is reached might be forced to pay an inflated price. In addition, the Delphi situation remains unresolved.
And it is unclear as to how workers would react to a buyout. Many are unfamiliar with the concept, and might be unable to reconcile $10 or $12 in cash for shares that were each purchased for over $20.
In addition to Ross’s concerns, there is the matter of the Ford family itself. LBO firms often like founding families, because they hold large ownership positions and are easier to deal with than endlessly splintered shareholder pools. They also often are considered corporate assets from either a managerial or technical standpoint.
The current Ford family, on the other hand, has brought little to Ford than their forefather’s name. Bill Ford Jr. said in recent weeks that he was overmatched as CEO, after which he resigned and hired former Boeing executive Alan Mulally. But Ford Jr. will stay on as chairman, and remains wishy-washy as to the idea of selling out.
In a BusinessWeek interview, Ford Jr. said that his family will “not stand in the way” of recovery, but also said that the issue of diminished ownership “has never been raised,” adding, “I’m not sure what it would accomplish.”