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The Sum Of Ford's Parts

Paul Maidment writing for Forbes submited this insightfull piece on Ford, I thought you would like to see it here.


NEW YORK - If you want further evidence that the market is addressing the problems of aggressive accounting in the only way it knows how--by destroying market value--look no further than today's announcement from Ford Motor.

Skip past the news that Ford, the No. 2 automaker, says the selloff part of its back-to-basics revitalization plan is on track. It aims to raise $1 billion from the sale of non-core operations for which the Jacques Nasser-era management paid princely sums to diversify from car making into automotive services.

Instead look at details of the present Bill Ford-era management's announced sale of an 81% stake in Kwik-Fit, an Edinburgh, Scotland-based tire, mufflers and batteries replacement business that operates across Europe. The business that advertised itself under the memorable slogan, "You can't get quicker than a Kwik-Fit fitter" has been sold to CVC Capital Partners, a London-based private equity group, for £330 million ($505.2 million).

The bad news, for Ford, is that the price tag is substantially less than the $1.6 billion it paid for Kwik-Fit in 1999. Cut the carmaker some slack for the decline in stock prices, a slowing world economy, weakening dollar and some prospective European Union rules on downstream ownership in the auto industry, but Ford was still expecting to get more than a $1 billion of its money back. Or at least until recently. The reason for the last-minute $500 million drop in the price tag, that turned a modest loss into a horrible one? You guessed it--accounting irregularities.

As Kwik-Fit was being prepped for auction, a reported £3.4 million ($5.2 million) hole was discovered in its books. Auditors' documents leaked to the European press in July said the company was receiving goods from suppliers but failing to account for the cost in a timely way. This understated the company's liabilities and, in effect, boosted profits.

Two of three prospective buyers dropped out following the revelation. The third, CVC Capital, stayed the course but could negotiate a fire-sale price on preferential terms. Though the buyer will pay in cash and a note, it doesn't have to do so until it secures outside financing for the deal.

Ford will retain a 19% stake, against better days returning to Kwik-Fit and the European vehicle light-repair business. But it will also take a one-time $500 million after-tax charge for the deal in the third quarter. Meanwhile, the market has extracted its own terrible price for corporate malfeasance.

The deal, and another one announced today by Ford--the sale of Collision Team of America, a U.S.-based chain of collision repair shops, to businessman Daniel Hall for an undisclosed price--also symbolize another gathering sea-change in American business--the reversion of publicly held assets into private ones.