It's Time to Take Ford Private -- WSJ
|08/08/2020 | 02:48am|
To innovate, the auto giant needs to forget about shareholders for a while
By John D. Stoll
Today marks two years since that infamous Elon Musk tweet. "Am considering taking Tesla private at $420," the billionaire posted. "Funding secured."
Tesla Inc. is still public, and it's thriving. But there is another billionaire in the auto business who should consider the virtues of being private: Bill Ford.
The Ford Motor Co. chairman on Tuesday named a new chief executive, Jim Farley. I talked to multiple managers at Ford this week, and their goal is ambitious: They don't just want to be Tesla, they want to lap it.
Some of the raw material is in place. Ford is a partner with Rivian, the company building battery-powered delivery vans for Amazon.com, and it has invested in robocar developer Argo AI. The new CEO is an industry lifer promising to boost profits, revenue and competitiveness.
Old-line companies like Ford, though, struggle to satisfy lofty goals and fickle stockholders at the same time. Wall Street's short-termism tends to target the old and slow, not the young and nimble. Consider how an auto company few have ever heard of -- Nikola Corp. -- bolted past Ford in market value this summer despite never earning a dollar of revenue.
Sometimes, the answer is to take back control.
This is something Michael Dell realized after the financial crisis, when shares in his once vaunted personal-computer company were trading for the equivalent of milk money.
At that time, Dell was seen by investors as a computer maker more akin to Hewlett-Packard than Apple; its shares curdled. The core PC business was vital, but the industry was overshadowed by smartphones. Its founder, however, believed the company could be a key player in tech-industry infrastructure.
A $24.4 billion buyout, executed with Silver Lake Partners, gave Mr. Dell total control. Being private allowed him to buy a bunch of companies and sink big investments without justifying his actions to analysts every three months. Today, the newly named Dell Technologies Inc. is worth $45 billion. It still makes PCs, but it is considered a major player in cloud computing.
I asked Mr. Ford about the Dell strategy in 2017. This was a few weeks after he replaced CEO Mark Fields with an office-furniture executive named Jim Hackett amid worries his company lacked adequate vision. Mr. Ford, a hockey fanatic, said he'd spent much of his career deferring to other executives at the company that bore his name, but he now needed to shoot for transformative goals.
"I've got to do this," he said.
He said that taking Ford private had been seriously explored, but it wasn't necessary. The company, he said, was already guided by long-term thinking. And managers feared that Ford's debt load would be too hefty, and the Ford Credit lending arm would be unable to tap public financing if the parent left the stock market.
In the end, Mr. Hackett's tenure was a stinker from an investor standpoint. Shares slid amid meager profits and product hiccups. But Mr. Ford praised his outgoing boss's willingness to challenge convention and slay sacred cows. "He cared more about Ford's reputation than his own," Mr. Ford said at a press conference Tuesday.
I was already well acquainted with Mr. Ford. I met him in 2001 as a cub reporter. He was presiding over a celebration at the historic Rouge factory. A "living roof" with trees, shrubs and grass would be installed on a new plant being built on the site.
In the years that followed, I watched TED talks, attended conferences and took notes in staff meetings (I briefly worked at Ford) where similarly sustainable goals and aspirations were outlined. Ford bought a Norwegian EV maker, introduced hybrids and, for a spell, backed away from gasoline-thirsty SUVs.
Today, however, the company's business model is almost entirely identical to the one I studied in 2001. Why? Milking profits from trucks and SUVs is the most efficient way to tamp down investor revolts.
"We have to create shareholder value," Mr. Ford told the Detroit Free Press this week after Mr. Farley's appointment.
There is a reason to place a bet on the 63-year-old great-grandson of Henry Ford. Since the death of his father in 2014, Mr. Ford has been amassing the company's supervoting Class B shares, and now owns one-fifth of the pie, compared to less than 5% in 1999 when he became chairman of the board.
While Mr. Ford has grown more powerful, however, Wall Street has grown more skeptical of the company. The market value of Ford's combined classes of stock was $64.5 billion when he took over in 1999. By the start of this year, the sum had declined by 37%. The value of a single share has been more than halved when adjusted for splits and dividends.
Today, the stock's low price relative to its high dividend indicates investors expect little growth -- increasingly a code word for innovation -- in years to come. Being off the stock market would give Mr. Farley, the CEO, more margin for taking risks, fewer people outside the company to constantly answer to and time to remake Ford's image from hackneyed metal-bender into savvy tech company. It eventually would need to be public again, to cash out private investors, but better to look more like Tesla and less like General Motors in that next IPO.
Before Ford could go private, there would be big questions to answer, including what to do with the finance company and how big of a premium current investors need. And there are cautionary tales. Remember Cerberus Capital Management's takeover over Chrysler in 2007? It was a disaster.
Yet, David Brophy, a University of Michigan Ross Business School professor considered an expert in private-company finance, told me that going private is possible for a company even as encumbered and complex as Ford.
"I'm sure a lot of people have been looking at Ford given how cheap the stock is," he said. The Fords would need to likely find several investors from various continents to pull off a deal, which would include the assumption of $30 billion in automotive-business debt, about half of which was taken on during the first quarter to get through the pandemic.
Ford, the family and the buyout industry are all flush with cash. Money that investors have committed to private-equity funds that hasn't yet been spent was at a record $1.45 trillion globally as of June, excluding venture-capital funds, according to data provider Preqin Ltd. Among them are firms known for long-term thinking that would be willing to lend Mr. Ford the cash and patience he needs, Mr. Brophy said.
"If you wanted to patch the roof, this strategy would allow you to get her done and then bring it back as a new entity," he said. " Bill Ford could be your Michael Dell."
Write to John D. Stoll at email@example.com