To innovate, the auto giant needs to forget about shareholders
for a while
By John D. Stoll
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 8, 2020).
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 john.stoll@wsj.com
(END) Dow Jones Newswires
August 08, 2020 02:47 ET (06:47 GMT)
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