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September 14, 2009

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Ford board moves to protect tax assets

FORD Motor Co has said its board of directors has adopted a plan designed to deter shareholders who hold more than a 5 percent stake from increasing their ownership, in order to protect its tax assets.

Were shareholders allowed to hold a bigger stake, the auto maker would lose access to certain tax shelters and face increased federal income-tax liability.

At the end of last year, Ford had tax credits, net operating and capital losses offsetting US$19 billion in future taxable income.

Ford said last Friday that the United States tax code would limit its use of such tax attributes as credits and capital losses if shareholders with a 5 percent or greater stake in the company were to collectively increase their holdings by more than 50 percent over a rolling three-year period.

The tax preservation plan would be triggered by a shareholder acquiring a stake in the company of more than 4.9 percent.

It would also be triggered if an existing holder acquired more than one half of 1 percent of common shares.

Under the terms of the plan, Ford's board of directors declared last Wednesday a dividend right to purchase one common share for every outstanding share at a discount, should an ownership change occur. Exercising the right would dilute the 5 percent shareholder and protect Ford's tax attributes.

Ford would not describe the move as a "poison pill" to protect the company from ownership change. The Ford family owns "Class B" shares, which carry 40 percent voting rights, providing stability from outside intrusion.

"This is solely a plan to protect a valuable asset and is not a takeover prevention plan in any way," said Peter Sherry Jr., Ford's corporate secretary and associate general counsel.


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