An initial public offering (IPO) is a milestone achievement for a company, often a relatively new company. But, for Ford Motor Company, it was a belated achievement. The company’s founder was wary of giving up control so an IPO would only happen after his death. Still, the offering had the result of realizing new fortunes and allowing more people to invest in the company, much as any IPO does. In the case of Ford though, this happened decades later than many other companies’ similar offerings and so the Ford initial public offering was the largest in American history up to then.
Ford in the 1950s
Ford Motor Company’s founder Henry Ford wanted to control the company himself. He went so far as to buy out his fellow shareholders in 1919 for $195 million and the company thereafter came to be owned by essentially the Ford family alone. After it was created in 1936, the Ford Foundation came to be the largest shareholder. Among the large automakers in America, Ford was considered to be losing ground immediately after the Second World War. However, the business turned around. Executives were hired from the other companies, new products launched, manufacturing facilities rationalized, and more resources dedicated to research and engineering. The company grew larger than Chrysler but was still about half the size of General Motors.
By the time of its initial public offering, Ford had earned approximately $27 billion in revenues in the preceding ten years. Ford’s annual sales grew from $1.5 billion in 1947 to over $4 billion in 1954. In 1955, the company would match the prior year’s $4 billion sales number with three more months to spare in the year. Over the same period, the company made a profit of $312.2 million. Back in 1946, the company fell just short of even breaking even.
Initial Public Offering
The Ford Foundation owned most of Ford Motor Company and this was its principal asset. Since the foundation wanted predictability in its ability to fund grants, its principal activity, the Ford Foundation wanted to diversify its investments. To accomplish this, it needed to sell its Ford shares but no one investor could acquire such a large stake in a company like Ford. So, a sale of the shares to the general public, accompanied by a listing on the New York Stock Exchange was the chosen course. In all, 10.2 million shares of Ford common stock were offered to the public. This represented about 22% of the company’s shares outstanding at the time and was an increase from 15%, the original target for the IPO when the foundation, alongside the company itself, first announced its intent to sell stock to the public.
All of the shares offered to the public were previously held by the Ford Foundation. The foundation had just exchanged its old nonvoting shares for a combination of new nonvoting shares along with this block of 10.2 million voting common shares in preparation of the IPO. The restructuring meant that the shares issued to the public would be voting shares; voting rights were expected to enhance their value and make the offering compliant with good corporate governance principles.
Eight major underwriters would run the offering, taking the Ford Foundation’s shares and reselling them to the public. Goldman Sachs was given a lead role as was San Francisco-based Blyth & Co. Goldman Sachs had a close relationship with one of the members of the Ford Foundation’s finance committee, Charles Edward Wilson, who had worked in the War Production Board years earlier with Goldman Sachs’s chief executive Sidney Weinberg. Henry Ford II was also friends with Weinberg; both were involved in the Business Advisory Council of the U.S. Department of Commerce. Weinberg would become a director of Ford Motor Company after the IPO. Before the IPO, Goldman Sachs was involved in the restructuring of the company’s share classes.
Other underwriters involved included First Boston Corporation, Kuhn, Loeb & Co., Lehman Brothers, Merrill Lynch, Pierce, Fenner & Beane, and White, Weld & Co. IPO shares were sold to these underwriters at $63 per share. Annualizing the company’s earnings from the first nine months of 1955 for a full year’s profit, this price constituted a multiple of about eight years of earnings. In any case, the public would pay a marginally higher price, $64.50, when they bought the shares from the underwriters.
The Ford IPO involved many companies. The total list of underwriters was 205 firms long and more than 500 brokerage firms were involved in the deal too. They were responsible for handling orders and allocating shares. Ford dealers were allowed to each buy up to seven hundred and fifty shares; other individual purchasers were limited to two hundred shares each. This was the largest public offering of common stock up to that point and the IPO made 300,000 new Ford shareholders. Public trading began on January 26, 1956. In the subsequent months, shares traded at between approximately $52 and $70.
Insider Millionaires
The IPO enriched many. The truth is, the Ford family and the Ford Foundation were not the only shareholders, even if they did own the vast majority of Ford Motor Company. As of September 30, 1955, there were one hundred and eight employees of Ford who owned stock in the company. Cumulatively, they held 42,140 nonvoting shares, which were converted into 632,100 shares in a 15-to-1 split that accompanied the share class restructuring that preceded the IPO. These shares would be worth nearly $40 million after the IPO at the underwriters’ price of $63 per share or $41 million at the slightly higher public offering price. These insiders had the option to buy even more shares under employee stock options, about 1.5 million shares at a price of just $21 each or a third of the price underwriters were paying for the IPO shares.
The insiders who became millionaires following the IPO included the company’s chairman of the board and its executive vice president, general counsel, its vice presidents of finance and industrial relations, among others. Consider Ernest Breech, chairman of the board. His salary in 1955 was $185,000. He earned a bonus in 1954 that was $272,000. But most meaningfully of all, in 1953, he was issued options to purchase shares which were equivalent to 90,000 of the new shares at $21 per share. He exercised options to buy 27,000 shares, paying $567,000. At $63 per share, these were worth $1.7 million now. The intrinsic value of the remaining options to purchase 63,000 shares was more than $2.6 million.
Broader ownership of publicly listed shares after the IPO created investment opportunities for more insiders. Around the same time as the IPO, the company created 900,000 new options. These were given to officers and salaried employees but would have a strike price equal to market prices when issued so they were no where near as valuable as those options given prior to the IPO. Though, alongside this, the company established a savings and stock investment program into which eligible employees could invest up to 10% of their base pay and to which the company would contribute an amount half of the employees’ contributions. Half this fund’s money would be invested in Ford stock.
Ford Foundation
Another ‘winner’ in the Ford IPO was the Ford Foundation. It was founded in 1936 by Henry and Edsel Ford, partly in response to very high estate taxes, which rose to 60% on estates over $10 million in 1934 and 70% the following year. Giving their fortune to a foundation avoided a tax bill that would require the heirs of Henry and Edsel Ford to sell stock to pay the estate tax. Henry Ford was particularly insistent in keeping the firm tightly controlled and giving away most of the fortune while keeping voting shares in the hands of the Ford family made keeping this control possible into the foreseeable future.
The Ford Foundation had a broad mandate to improve the lives of mankind. In the 1950s, it was giving money to grantees in education and medicine especially and by 1956, had recently begun expanding its philanthropic aims to other countries. It was funded with most of the Ford family’s shares in Ford Motor Company, besides the voting shares that were retained by the family. Thus, prior to the IPO, the foundation’s grants were funded by Ford dividends and these were not always predictable.
The IPO allowed the Ford Foundation to cash in on its principal investment and diversify its portfolio. The IPO resulted in proceeds to the foundation of $642.6 million or $640.7 million net of auditing, legal, and other fees associated with the offering. This represented a gain of $548.8 million on the shares.
Even after the IPO, the foundation continued to hold nonvoting shares in Ford Motor Company equal to about two-thirds of the company’s equity capital. This was valued at $325.2 million on the foundation’s 1956 financial statements but this at a book value far below market values. These nonvoting shares were convertible into new common shares but only with approval of other shareholders. If converted though, the shares remaining with the foundation would be worth $2.15 billion at the end of the foundation’s 1956 fiscal year.
The foundation invested the proceeds of the IPO into new investments. The portfolio increased by $526.6 million. The Ford Foundation’s investment portfolio, besides its remaining Ford stock, was primarily comprised of U.S. Treasury bonds and some private bonds, largely those of utility companies like AT&T and Consolidated Edison Company of New York. Most of these bonds were due to mature within the next four years. With all this money, the Ford Foundation would fund about $500 million worth of grants it announced around the time of the IPO.
Lesson
In its effect, the Ford IPO in 1956 was fairly typical of initial public offerings. It allowed a large investor to sell their investment, at least partially. Shares that had not been widely marketable now had millions of potential buyers and their true value could be immediately realized. This created a lot of minor fortunes. However, the origin story and scale differ from most IPOs. Compared to others, this company was delayed in issuing shares to the public and listing them on a stock exchange because of the wishes of the company’s founder; not unheard of but Henry Ford’s desire for control was particularly strong. The money raised also largely went to a foundation, not the company itself or the founder’s heirs, since the Ford Foundation was the seller of the publicly sold stock. The size of the offering meant that not a few firms, but a few hundred firms, were involved in the distribution of the Ford stock.
More from the Tontine Coffee-House
Read about Ford’s 1919 buyout by Henry Ford. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.
Further Reading
1. “For New Era in Ford History, a New Line-Up of Millionaires.” Detroit Free Press, 17 Jan. 1956.
2. Pak, Susie. “Where Are They Now? The Syndicate of the Ford Motor Company Initial Public Offering of 1956.” Financial History, Fall 2017, pp. 12–15.
3. The Ford Foundation. Annual Report 1955. 1955.
4. The Ford Foundation. Annual Report 1956. 1956.
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