There has been a great deal of talk about Altria (MO) splitting its domestic and international tobacco operations. Standard and Poors recently mentioned that this might unlock some of the shareholder value in the company now that it has spun off Kraft (KFT). Wall St. believes that overseas tobacco operations may have more room for growth and that cigarette use in the US has peaked.
Ford (F), which is doing fairly well overseas and very poorly in the US, might look at the same thing. Recent media reports claim that BMW may be buying Ford’s Volvo unit. Merrill Lynch has estimated that the big US car maker could raise up to $9 billion selling off its premium brands which also include Jaguar and Land Rover.
Ford’s US operations brought in $18.2 billion last quarter. The segment lost almost $3 billion. Ford’s overseas units which include South America, Europe, and Asia had revenue of $12 billion for the quarter. More important, they had operating income of $251 million. If the premium car group is added, revenue rises to $20 billion and operating income to $400 million.
Most of Ford’s legacy problems with its units, especially retirement, pension, and health-care costs, are part of the US arm of the company. Most of Ford’s debt is in its financial services operation, $137 billion of the $167 billion on the company’s balance sheet.
DaimlerChrysler (DCX) has just parted with its US operations. There is really no other way to look at the sale of Chrysler to hedge fund operator Cerberus.
It is time for Ford to do the same. A recent story in BusinessWeek said that the company’s new CEO, Alan Mulally, is having trouble with Ford’s entrenched management structure. Fine. Breaking the company into pieces may solve some of that. Smaller operations could have fewer layers.
The other benefit to breaking off Ford’s international operations is that shareholders, including the Ford family, could have something of value. BMW has revenue of about $16 billion in the first quarter, but the company was profitable and its stock does well.
With little left for Ford in America beyond union contracts, debt, and dropping revenue, the UAW would have very little bargaining power this Fall. Ford US would be a genuine candidate for Chapter 11, and without every shoulder to the wheel, the firm would not make it. Management and employees would have to own up to problems in the American market and solve them quickly or simply go out of business, at least as an independent entity.
Ford needs the focus.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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