Ford's idea for VEBA: $13.2 billion contribution

Ford Motor Co., Dearborn, Mich., wants to contribute more than $13.2 billion — including up to $6.6 billion in company stock — to a health-care VEBA for UAW-represented company retirees, according to a Ford proposal with the Labor Department's Employee Benefits Security Administration.

Ford is seeking an exemption to allow the United Auto Workers Voluntary Employees Beneficiary Association to hold Ford securities in excess of the amount allowed from an employer by ERISA.

The automaker would have the option of paying up to half of the $13 2 billion in its stock or cash. Ford plans to issue to the VEBA two notes with a total value of $13.2 billion.

In addition to the two notes, Ford would contribute warrants, whose value wasn't estimated, enabling the VEBA to purchase 362 million shares at $9.20 a share. In midday trading today, Ford stock was at $8.88. Ford has 3.3 billion shares outstanding.

Ford plans to make on Dec. 31 the first payment of its total contribution to the VEBA with $1.3 billion in cash and $600 million in any combination of cash and Ford stock of the company's choosing.

The two notes pay a 9% interest rate. Because the notes are non-interest bearing, with the interest computed in the price of the bonds, the bonds have a present value cost to Ford estimated at between $7 billion and $8 billion after the Dec. 31 $1.9 billion payment.

The EBSA, which must approve the exemption, opened a 40-day period for public comments or requests for a public hearing on the proposal as of Dec. 8, when the proposal was published in the Federal Register.

With the proposed payments, Ford would end its obligations to fund retiree medical benefits of its UAW-represented employees under a 2008 settlement agreement between the company and the UAW. Detroit-based General Motors Corp. and Chrysler Group LLC, Auburn Hills, Mich., reached similar settlements with the UAW.

The new VEBA, created out of settlements with the three automakers, is scheduled to begin operation Jan. 1. The new VEBA will be overseen by an 11-member committee, five of whom were appointed by the UAW and six appointed by the U.S. District Court in Detroit. Ford, GM and Chrysler will have no role in the VEBA's management or oversight.

The VEBA is commingling the contributions of the three automakers into one fund, whose total value has been estimated at $37 billion.