Ford takes the dilution road

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Ford (F) as much as admitted that it needed cash today. While the money may not go toward operations, the car company has other obligations that will require access to capital.

Ford today announced that it planned to sell 300 million shares. The majority of that will almost certainly go toward funding the firm's obligations to it employees as part of last year's contract with the UAW which created a retiree trust fund, commonly known as a Voluntary Employee Beneficiary Association, or VEBA.

The Ford offering should raise about $1.8 billion. Because of the dilution of current shareholders that will be involved in the transaction, the company's shares fell over five percent after the close to $5.78.

Once Ford closes the transactions and fulfills it obligations to the union, the question will remain open as to whether the firm will need to raise additional cash to underwrite losses. So far, Ford's management has said that will not be necessary, but if the domestic car market does not begin to recover, the company could be back in the capital markets before the end of the year. If access to private money remains tight, Ford will not have any option other than to turn to the federal government as General Motors (GM) and Chrysler have.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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