Visteon to cut plants and workers in deal with Ford

DETROIT - Ford Motor Co said on Wednesday it would spend up to US$1.15 billion ($1.6 billion) to bail out auto parts supplier Visteon Corp, allowing its former subsidiary to slash costs by unloading unprofitable plants and 17,400 highly paid employees.

Shares of Visteon, which was spun off from Ford in 2000 but has struggled to post profits, rose 13.7 per cent.

The agreement would transform Visteon into a company with annual revenues of US$11.4 billion, down from US$18.7 billion in 2004, with Ford accounting for about 50 per cent of its revenue, down from about 70 per cent currently.

Ford, which continues to lose vital US market share and is battling rising costs and the impact of a debt ratings downgrade to junk status, will take over 24 plants in the United States and Mexico take back the 17,400 workers employed by Visteon under a lease agreement.

"For Visteon, it's a clear positive. It provides them with the support necessary to restructure their businesses," Fitch Ratings managing director Mark Oline said.

For Ford, however, the agreement was seen negatively. The No. 2 US automaker said the agreement would result in operating losses for the 2005 fourth quarter of US$125 million and of US$200 million to US$300 million for the 2006 full year, on top of special charges.

"I would say this is not a good thing, clearly," Ford Chief Financial Officer Don Leclair told reporters and analysts in a conference call. "It's a tough situation that we're in."

Leclair said there was no way the automaker could have foreseen the current problems facing the parts industry and Ford when it spun off Visteon in 2000.

"It's a change in plans, clearly, but that's something that's required because of the change in circumstances," Leclair said.

Ford is doing in now what it should have done years before to prepare Visteon for its initial public offering, Merrill Lynch analyst John Casesa said in a note to clients.

"The deal at this stage clearly looks very positive for (Visteon) and negative for Ford," he added.

Credit rating agencies Standard & Poor's and Fitch said their ratings on Ford were not affected by the proposal. Fitch revised its outlook on Visteon to positive from negative and said it may raise its rating on Visteon, saying that if the agreement is approved Visteon "would have a dramatically improved operating profile and capital structure."

VISTEON TO DOWNSIZE

Visteon said it would transfer 20 plants in the United States and four in Mexico to an entity to be owned by Ford. Ford expects eventually to sell most of the plants, which mainly produce powertrain, chassis and glass products.

The 17,400 workers, whom Visteon leases from Ford to work at many of its plants at much higher wages than its own employees, would be returned to the automaker.

The automaker said it plans to sell most of the plants eventually and to buy out about 5,000 of the union workers.

The United Auto Workers union has already recommended that its members accept the agreement, which is expected to close by the end of September.

Visteon expects a net gain of from US$450 million to US$650 million depending on the assets that are transferred.

Visteon, which had a net loss in 2004 of US$1.5 billion, said more restructuring will be needed over the next several years.

Shares of Visteon rose 84 cents to US$7.11 near midday on the New York Stock Exchange, after earlier hitting a 5-month high of US$8.20. Shares of Ford were down 3 cents at US$9.95.

Ford expects special charges of US$450 million to US$650 million in 2005 and from US$300 million to US$500 million in 2005 through 2009. It expects annual material savings of US$600 million to US$700 million by the end of the decade.

Ford will also relieve Visteon of its US$2 billion liability for retiree health-care and life insurance benefits under a Ford-UAW agreement.

Ford will provide a secured US$250 million loan to Visteon to repay debt due on Aug. 1 and will pay up to US$550 million of Visteon's restructuring costs. The loan will be repaid when the deal closes.

Ford will also receive warrants to buy up to 25 million shares of Visteon stock at US$6.90 per share.

The memorandum is subject to approval by the UAW and regulators. A final agreement is expected to be signed by Aug. 1, Visteon said.

The UAW has scheduled a vote by its members on the proposal, starting on May 31.

- REUTERS