Ailing auto parts supplier Visteon Corp. (VC) on Wednesday said it will slash costs by unloading plants and 17,400 workers back to former parent Ford Motor Co. (F), driving Visteon shares up 24 percent.
Visteon, which has never shown consistent profits since its spin-off from Ford in 2000, said it would transfer some 20 plants in the United States and four in Mexico to a separate entity to be owned by Ford.
Ford expects eventually to sell most of the plants, which mainly produce powertrain, chassis and glass products.
The 17,400 workers, which Visteon leases from Ford to work at many of its plants, would be returned to the automaker, employed by the new entity, or bought out.
The United Auto Workers (search) union has already recommended that its members accept the agreement, which is expected to close by the end of September.
"For Visteon, it's a clear positive. It provides them with the support necessary to restructure their businesses," Fitch Ratings (search) managing director Mark Oline said, adding that Ford appears to be looking for a long-term solution as well.
The agreement would transform Visteon into a company with annual revenues of $11.4 billion, down from $18.7 billion in 2004, with Ford accounting for about 50 percent of its revenue, down from about 70 percent currently.
The agreement covering the leased workers has saddled Visteon with high labor costs that have prevented those businesses from being profitable. The workers covered by Visteon's leasing agreement with Ford are paid much higher wages than Visteon's own employees.
Shares of Visteon rose $1.48 to $7.75 on the New York Stock Exchange (search), after earlier hitting a 5-month high of $8.20. Shares of Ford were down 12 cents at $9.86.
Following the restructuring, Visteon will focus on products where it has generated significant new business including interiors, climate control, electronics and lighting, it said.
"The jury is very much still out" on whether the deal will make Visteon competitive, said Tim Ghriskey, chief investment officer with Solaris Asset Management.
"It's certainly not home-free for Visteon, but it does take the financial pressure off," Ghriskey said. "The prospects for sustained profits at the company are still very questionable."
Solaris does not own either Ford or Visteon stock, but follows them closely.
Visteon expects a net gain of from $450 million to $650 million depending on the assets that are transferred.
Visteon, which posted a net loss in 2004 of $1.5 billion and a first-quarter net loss of $188 million, said further restructuring will be needed over the next several years.
Ford said it plans to sell most of the plants eventually and to buy out about 5,000 of the union workers.
Visteon will also be relieved of its remaining $2 billion liability for retiree health-care and life insurance benefits under a Ford-UAW agreement, including about $1.5 billion in previously deferred gains.
Ford will provide a secured $250 million loan to Visteon to refinance public notes due Aug. 1 and has agreed to reimburse up to $550 million of further Visteon restructuring costs. The loan will be repaid when the deal closes.
Ford will receive warrants to buy up to 25 million shares of Visteon stock at $6.90 per share. It expects special charges of $450 million to $650 million in 2005 and from $300 million to $500 million in 2005 through 2009.
Ford expects annual material savings of $600 million to $700 million by the end of the decade, but expects operating losses of about $125 million in the fourth quarter and an annual operating loss of $200 million to $300 million in 2006.
The non-binding memorandum is subject to approval by the UAW and regulators. A final agreement is expected to be signed by Aug. 1, with the transaction closing by the end of the third quarter, Visteon said.
The UAW has scheduled a vote by its members on the proposal, starting on May 31.