Questions about the United Auto Workers’ sale of Ford warrants

Questions about the UAW’s sale of Ford warrants

DETROIT — Ford Motor Co. said Monday that a United Auto Workers-run trust fund will try to raise at least $1.3 billion selling warrants for Ford shares starting Tuesday.

What is the trust fund for?

The UAW-run trust fund, also called a voluntary employee beneficiary association, or VEBA, covers health care costs for around 200,000 retired Ford factory workers and their spouses. The trust was established in 2007 as part of labor negotiations between Ford and the UAW.

How does a warrant sale work?

Warrants, like stock options, represent the right to purchase shares. The UAW trust fund holds warrants to buy 362 million shares. Starting Tuesday, they will sell the warrants at a minimum price of $3.50 each. The warrants give the holder the right to buy a Ford share at $9.20. To satisfy the warrants, Ford will issue stock to the buyers based on the difference between $9.20 per share and the share price at the time the warrants are exercised. Ford won’t make any profits on the sale.

What is Ford’s share price?

Ford shares closed Monday at $13.57. Ford’s shares hit a five-year high on March 18, when they reached an intraday price of $14.54. They fell as low as $1.26 in 2008, but in 2009 Ford benefited from consumer goodwill after it didn’t take government bailout money or file for bankruptcy protection as General Motors Co. and Chrysler Group LLC did. Ford also made a profit in 2009, its first in four years.

Why did the UAW act now?

Analysts say the UAW saw an opportunity with Ford’s share price on the rise and didn’t want to wait to act in such a volatile industry. The UAW had to exercise the warrants by 2013, and is required to diversify the trust fund’s investments.