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Discussion Starter #1

As 2nd-quarter loss soars to $254M, automaker looks at alliances, sale of assets

Bryce G. Hoffman and Christine Tierney / The Detroit News

DEARBORN -- Facing pressure from its board and Wall Street, Ford Motor Co. has hired a mergers-and-acquisitions expert to study whether it should sell underperforming brands such as Jaguar, form an alliance with another major automaker or make other large-scale strategic moves.

Kenneth Leet, 48, a former investment banker for Goldman Sachs and Bank of America, will report to Chairman and CEO Bill Ford Jr.

Leet has been charged with "exploring a broad range of strategic alternatives," the company said Wednesday. While Ford did not elaborate, people familiar with the situation said the review will explore assets sales and possible alliances.

The announcement of Leets' appointment came the same day Ford was forced to restate its second-quarter financial results, doubling its loss to $254 million, and warn that its Premier Automotive Group -- which includes Jaguar and other European luxury brands -- will lose money in 2006.

Ford launched a North American turnaround plan in January that called for plant closures and job cuts, but a rapid shift away from pickups and SUVs has severely undermined the effort. Ford has pledged to speed up the plan.

In an e-mail to employees Wednesday, Bill Ford said the North American turnaround remains the top priority but that he "will continue to evaluate the rapidly changing landscape of our industry and review the best ways in which we should adjust."

He added: "Contrary to speculation, nothing has been decided and we will not rush to judgments."

Some Ford board members are concerned about the pace of Ford's turnaround effort and worry that a possible tie-up between rival General Motors Corp. and Nissan Motor Co.-Renault SA could leave Ford vulnerable in the rapidly evolving global automotive industry, according to people familiar with the situation.

Leet decision was Bill Ford's

Ford spokesman Tom Hoyt stressed that the decision to hire Leet was made by Bill Ford in consultation with the board.

"Bill and Ken have had a long relationship," Hoyt said, noting Leet once headed the Ford account at Goldman Sachs.

As the strategic review progresses, the Ford family could be forced to reassess its role in the company founded by Henry Ford. The family, led by Bill Ford, has held a 40 percent controlling stake in the automaker for the past 50 years through its Class B super-voting shares. But mergers experts say the size of the stake could be an impediment to forming a major alliance with another automaker.

"Ford will not be able to do some of the things it needs to do as long as the family maintains its control of the company," said veteran auto analyst John Casesa of New York's Casesa Shapiro Group LLC. "It's an issue the family needs to confront now."

Ford officials dismiss the notion that the family control is blocking potential mergers, pointing out its various alliances and joint ventures around the world. But they haven't expressly ruled out changes in the ownership structure.

The knowledge that Ford is open to an alliance puts additional pressure on GM as it begins its own talks with Nissan-Renault -- particularly since many analysts see an alliance between Nissan-Renault and Ford as a more promising alternative.

Renault and Nissan's CEO Carlos Ghosn approached Ford more than a year ago about a possible tie-up, but was told the Dearborn automaker would not consider any deal that required the Ford family to cede its controlling stake in the company, according to people familiar with the situation.

Ghosn open to deal

In July, Ghosn told The Detroit News that he is open to considering other alliances if a merger with GM fails to gel. A person familiar with the GM-Renault-Nissan negotiations said Ghosn has never ruled out a deal with Ford. However, the person said there is an understanding in investment banking circles that no one will deal with Ford unless the family agrees to dilute its voting rights to 20 percent and hires an experienced CEO to take over day-to-day running of the company from Bill Ford.

One of Leet's first priorities will be assessing the future of Jaguar Cars Ltd. Ford acquired Jaguar in 1989 for $2.6 billion but has been unable to make the British luxury brand profitable. In December, Ford was forced to spend $2.09 billion to bolster the brand.

"It's time to figure out what we are going to do about some of these brands," a Ford official told The News.

While Wall Street analysts welcomed the idea of Ford shedding Jaguar, they say more substantive changes are needed to fix Ford's domestic automobile business.

"Is selling Jaguar going to fix your problems in North America? I don't think so. The cash is nice, but they don't need it," said Bradley Rubin of BNP Paribas. "They don't need an alliance (either). They need to solve their own problems. They need to close the factories faster, open the attrition program to all employees and stop selling cars to the daily rental fleet market."

Ford has outlined a plan to shutter 14 factories and eliminate some 30,000 factory jobs over the next six years. While Ford has taken a more targeted approach to downsizing, GM has already managed to eliminate 34,000 U.S. hourly workers through buyouts.

'Desperate times'

"Desperate times call for desperate measures -- especially when GM is taking them," said Robert Barry of Goldman Sachs. "We think Ford's core challenges are unsustainably high (North American) market share given the competitive landscape, a relatively less competitive (North American) product lineup, and onerous legacy liabilities. We have doubts a strategic review or alliance can have a material impact, especially in the near- to medium-term."

Bill Ford says he knows the company needs to move faster and has promised to provide details of an accelerated restructuring plan and additional cost-cutting moves within the next couple of months.

The second quarter took Ford by surprise. Rising gas prices and interest rates forced a tectonic shift in the North American vehicle market away from gas-guzzling sport utility vehicles and full-size pickups toward more economical cars and car-based crossovers. Ford had braced itself for the drop in SUV sales, but the sharp decline in its bread-and-butter large pickups caught the company off-guard.

Ford also may review options for its Ford Motor Credit, its profitable finance arm. GM has sold a controlling interest in GMAC, its captive finance unit, to raise cash and lower borrowing costs. However, that appears to be lower on the list than other options.

"Ford Motor Credit Co. is a strategic asset to Ford that generates solid profits and dividends," Bill Ford told employees.

Though most analysts agree that Ford's problem is not a lack of cash, its financial woes have undermined the credit rating of Ford Credit, forcing it to borrow money at a stiff premium. That means Ford makes less money on the cars and trucks it finances.

Investors welcomed the news of Leet's appointment. Ford shares rose 38 cents, or 5.8 percent, to $6.96 Wednesday. They have fallen 9.8 percent this year.

7,859 Posts
Discussion Starter #2
Ford turns to longtime consultant to lead review

He was no stranger in Dearborn while at Goldman Sachs

David Shepardson / Detroit News Washington Bureau

WASHINGTON -- With its turnaround plan foundering, Ford Motor Co. looked outside the company for help but did not turn to a stranger.

Ford Chairman and CEO Bill Ford Jr. hired merger and acquisitions expert Kenneth H.M. Leet, 48, to review the money-losing company's operations and explore ways to improve performance, including possible asset sales and alliances with other automakers.

Leet knows the automaker intimately. During an 18-year career with the New York investment firm Goldman Sachs, he was assigned to the Ford account for several years.

"It's true that he has known Bill (Ford) and other senior executives for years," Ford spokesman Tom Hoyt said Wednesday.

Through Ford, Leet declined to be interviewed for this story.

Hoyt said Leet will divide his time between Dearborn, New York and "wherever the work is."

Family members and colleagues describe Leet as an exceptionally and dedicated man who splits his time between volunteering and the grueling hours of investment banking.

"It's not just about numbers crunching," said Frank Aquila, a partner at the New York law firm Sullivan & Cromwell, who has worked with Leet. "(What) Ken has always been known for is that he really understands both parties. He has a knack of understanding not only the financial issues, but really the non-financial issues that make him well-suited."

Over an 18-year career in the mergers and acquisitions department at Goldman Sachs, Leet worked for many industrial companies, including Emerson Electronics, and CSX Corp., a Jacksonville, Fla.-based transportation company

"He's very smart," said Leet's father, Ken, 78, a retired structural engineering professor from Chestnut Hill, Mass. "He has a very high IQ and he's always done very well. He sees things very quickly."

Ford's new strategic consultant is also a one-time undefeated wrestler who raced through Brown University in 3 1/2 years before beginning what has become a distinguished career in international finance.

He is a graduate of Milton Academy in Milton, Mass., Brown in Providence, R.I., and Harvard University Business School in Cambridge, Mass. He started at Brown with an eye toward medicine, but shifted gears to economics after his first year and even considered becoming a concert pianist, his father said.

In July 2003, Leet, who was managing director of the investment banking division at Goldman Sachs, was nominated to become undersecretary of domestic finance at the Treasury Department for the Bush Administration. Three months later, he withdrew his name for unspecified health problems.

"I had hoped to repay some small portion of the blessings I have received by serving my country as a member of your economic team," Leet told President Bush in an Oct. 29, 2003, letter.

Even before he withdrew, he had an interest in cancer research.

He serves as a trustee at the Harvard University-affiliated Dana-Farber Cancer Institute and is also founder of the Immunotherapy Research Fund and a trustee of the Rudolph Rupert Foundation, a small cancer research trust.

His father said Leet has recovered from the medical problem, and has recently begun writing a book about his experience.

Leet left Goldman in 2004. In March 2005, he went to work for Bank of America in London managing the firm's investment banking activities with industrial companies and left in May.

The oldest of two children, Leet's sister is an orthopedic surgeon in Baltimore. His wife had a career in finance specializing in real estate. He is the father of three young boys and a daughter, whom he shuttled around in a 1993 Ford Explorer before the family moved to London and he gave the SUV to his parents.

"He thought it offered a lot of protection," Ken Leet said.

Ford has several other close ties to Goldman Sachs. Two of the company's board members, Robert Rubin and John E. Thornton, are former Goldman executives. And the automaker's relationship with the firm dates back to 1956, when Goldman handled Ford's initial offering of public stock. Bill Ford and Thornton have been acquaintances since their prep school days in Connecticut in the 1970s.

Between 1996 and 2003, Ford reportedly paid Goldman more than $90 million in fees, according to media reports at the time, handling numerous transactions, including the purchase and sale of precious metals like palladium.

In 1999, Bill Ford bought 400,000 shares in Goldman Sachs Group Inc.'s initial public offering. After questions arose about possible conflicts of interest, Ford sold his stake and donated the profits to charity. In 2004, the company settled a shareholders lawsuit, agreeing to pay $13.4 million to settle the matter, with $10 million going to into a charitable trust.

7,859 Posts
Discussion Starter #3
Note from CEO Bill Ford to Ford employees

Detroit News

As you know, our response to the challenges to our business is the subject of ongoing speculation in the news media, on Wall Street, and in our own hallways and lunchrooms. That's to be expected at a time of great change in our industry and renewed urgency among all of us.

That's why I want you to hear directly from me how I view our situation.

First of all, the company's top priority remains the turnaround of our North American operations. As I said when we released our second quarter financial results, Mark Fields and his leadership team are accelerating their efforts, and we expect to tell you in the next couple months what additional measures we will take. These measures may be difficult, but are necessary.

Secondly, I will continue to evaluate the rapidly changing landscape of our industry and review the best ways in which we should adjust. That's why I've hired Ken Leet to assist me and our senior management team in evaluating our business and exploring strategic options. You can read more on Ken in the news release below.

Contrary to speculation, nothing has been decided and we will not rush to judgments. I'm proud of the progress that our operating units and brands around the world are making. Nearly all of them have been through turnaround efforts and have improved as a result. They will continue to pursue the strategies that have guided their progress.

And, as we've said before, Ford Motor Credit Company is a strategic asset to Ford that generates solid profits and dividends. The automotive financing unit continues to have strong business fundamentals and provides key support for Ford vehicle sales worldwide.

It is prudent in a time of rapid change in our industry for us to carefully examine all of our options. In the meantime, however, all of us must continue to remain focused on doing our part to get our company on the path to sustained profitability and success.

Thank you for your continued support of Ford Motor Company.

Bill Ford

7,859 Posts
Discussion Starter #4
Why Ford looked outside for help

Christine Tierney / The Detroit News

Ford Motor Co. hired a former Goldman Sachs executive, Kenneth Leet, to study the company's operations and advise Chairman and CEO Bill Ford Jr. on possible steps to improve performance, including selling assets and forming partnerships with other automakers. Some questions and answers about the move:

Q .Why is Ford doing this now?

A .Two reasons. The Dearborn automaker is under pressure to do something after its extremely disappointing second-quarter performance. Ford reported a $123 million loss last week -- and revised that on Wednesday to a wider, $246 million quarterly loss.

Ford's "Way Forward" recovery effort is widely viewed as trailing crosstown rival General Motors Corp.'s turnaround, which appears to be gaining traction.

In addition, GM is studying a three-way alliance with France's Renault SA and Nissan Motor Co. of Japan. That could potentially create a behemoth with a 24 percent global market share, dwarfing Ford.

Q .What's likely to happen now?

A .Possibilities range from the sale of assets, such as the loss-making Jaguar brand in Britain, to a vast cooperation with another automaker to pool development and research expenses.

Q .How do these partnerships work?

A .The record is mixed.

The 1998 DaimlerChrysler deal may someday be hailed as a success, but it has taken the company years to combine operations and reap any benefit.

Some arm's-length alliances, such as the Renault-Nissan partnership, work better by allowing each company to retain some autonomy and preserve its identity.

Q .Could Ford find a partner easily?

A .Other automakers are unlikely to consider a close tie unless the Ford family agrees to reduce its 40 percent voting block, say industry experts. The family would need to be willing to reduce that by half.

In addition, CEO Bill Ford Jr. might be pressed to hire a highly experienced manager to run the company's day-to-day operations and step aside.

Q .If GM turns down a deal with Renault-Nissan, could Renault-Nissan make something work with Ford?

A .Nothing has been ruled out. Carlos Ghosn, CEO of Renault and Nissan, knows Bill Ford -- and Ghosn likes a challenge.
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