NEWSWIRE - September 15, 2000
Topic: Stock Buybacks and Agency Issues
Source: "Ford Announces Stock Buyback of $5 Billion,"
by Norihiko Shirouzu, Wall Street Journal, Friday,
September 15, 2000, page A3.
Synopsis of Article: Ford Motor Company and
Bridgestone/Firestone, Inc. have received substantial press
coverage recently due to problems with Firestone tires installed
as standard equipment on Ford’s popular Explorer SUV. Since
the announcement last month of a recall of several tire models,
Ford’s stock price has declined by 10 percent. This article
reports Ford’s announcement of a $5 billion stock buyback
program. It provides an opportunity to discuss share repurchases,
the reasons for repurchases, and the resulting impact, if any, on
share prices. Given the substantial attention that Ford is
receiving due to the Firestone tire problems, the share repurchase
announcement also presents agency issues as questions arise over
Ford’s potentially conflicting loyalties to stockholders and
customers.
Questions and Teaching Note:
- Why would the management of a corporation decide to repurchase
stock?
- Why is Ford Motor Company repurchasing stock?
- How does Ford’s planned stock repurchase relate to
agency issues between management, shareholders, and customers?
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