Ford sets shareholder plan to preserve tax benefit

Ford Motor Co said Friday it has adopted a plan to restrict large shareholders so it can preserve future tax benefits that could offset about $19 billion of U.S. tax liabilities.

The plan is similar to ones adopted by more than 30 large U.S. companies so far in 2009 to maintain the tax benefits Ford could use when it returns to profitability, it said.

"This is solely a plan to protect a valuable tax asset and is not a takeover preventative plan in any way," said Peter Sherry Jr, corporate secretary and associate general counsel.

Ford, which posted net losses totaling about $30 billion from 2006 through 2008, accumulated the net operating losses, capital losses and tax credit carry-overs that comprise the potential tax benefits over several years.

The only large U.S. automaker not to reorganize in 2009 through a government-supported bankruptcy, Ford has said it expects to return to at least break-even in 2011.

Use of the losses to offset U.S. income would be severely restricted if shareholders of more than 5 percent stakes were collectively to increase their Ford ownership by more than 50 percentage points over a rolling three-year period, Ford said.

While that increase would not trigger an ownership change of Ford in the broad sense, it could trigger a change as defined by the U.S. Internal Revenue Service, Ford said.

Ford's funding needs of the United Auto Workers retiree health care trust potentially could affect the tax benefits and were taken into account for the rights plan.

Ford has agreed to fund about $13 billion for the UAW retiree healthcare trust, a Voluntary Employees Beneficiary Association, or VEBA, with the option to contribute about half of that in Ford stock.

The automaker has some room before the loss of tax benefits would occur, but the board thought it was prudent to adopt the plan now. Ford's debt reduction plans earlier in 2009, which included issuing new stock and swapping debt for stock, also moved it closer to the brink of losing the benefits.

The plan expires in three years and can be removed if the tax laws change or the benefits are exhausted. The plan will be up for a shareholder vote at the annual meeting in May 2010.

Ford's board of directors also may exempt common stock acquisitions from the plan and could terminate at any time.

Under the plan adopted by the Ford board, shareholders as of Sept. 25 receive the right to acquire a share of common stock for each share they own if the rights preservation plan is triggered.

The Ford tax preservation plan would be triggered if current 5 percent shareholders increased their stakes by more than 0.5 percentage point or if a holder acquired a 4.99 percent stake or more in Ford.

Ford said the issuance of the purchase rights would not affect its reported earnings per share and they are not taxable to the automaker or the shareholders.

The rights plan does not affect the Ford family ownership position in the automaker. The family holds a 40 percent voting right through 70.9 million Class B shares, while there were 3.2 billion shares of common shares at the end of August.

Ford shares were down 3 cents at $7.41 on the New York Stock Exchange at midday on Friday.