Pension Fund Challenges Ford 'Trade In'

May 10, 2002 ( - A Canadian public employees pension fund has taken Ford Canada to court over allegations the carmaker underpaid the fund by about C$200 million for its Ford stock holdings.

The action by the Ontario Municipal Employees Retirement System (OMERS), a C$33.7 billion (US$21.5 billion) fund, is based on a claim that Ford stock was worth much more than the C$185 a share the Ford parent paid for the 6% it did not own.

In 1995, when Ford made the purchases, the stock was worth C$480 to C$520 a share. “Our case is that they were paid substantially less than fair value,” said OMERS’ lawyer Frank Newbould.

Interest in Canada Wanes

OMERS president Dale Richmond said the dynamics of Canada’s car industry changed in 1988 with the passage of a free-trade agreement and the trend for carmakers like Ford to integrate their operations internationally.

In the 1990s a number of US auto companies including Ford began buying back shares from Canadian minority shareholders. Richmond claimed many of the carmakers offered low-ball prices and “we took great exception to it,” he said.

Profits Drained?

A key issue during court proceedings, which began last week, was the extent to which Ford US drained profits from Ford Canada. OMERS claimed nearly two-thirds of Ford Canada’s C$16.9 billion in sales in 1994 was to its US parent and that Ford US sold US-made cars and parts to the Canada operation for about the same amount.

The prices paid for those cars and parts effectively flowed profits out of Canada and, in turn, reduced the value of the Canadian operation, OMERS alleged.

John Arnone, Ford spokesman, said the company believes the judge will back the independent assessment at the time that the buyout price was fair and reasonable.

That opinion, rendered by Wood Gundy, the brokerage arm of the Canadian Imperial Bank of Commerce, said it took Ford’s word that the in-house prices for the cars and parts were close to open-market sales.

A decision is not expected in the case until late 2002 or early 2003.