GM IPO: FTW or LOL?
old school GM
Remember my post back in August about GM’s planned IPO? If you didn’t read it, please check it out because it gives a good explanation of how a bankrupt company can suddenly issue new stock. In the meantime, the IPO is the talk of the financial world again because shares started trading today. Initially offered at $33/share, the stock (using the old “GM” stock ticker) is currently trading near $35, putting the company’s market cap at over $52 billion!
Unlike most IPOs, this one was primarily owned by the government, thanks to the bailout funds. All of those shares at the offering price of $33 help to pay off the U.S. Treasury and reduce the government’s financial interest in General Motors. The intent is for the U.S. government to remove itself completely from General Motors and return the funds to the taxpayers. This is a step in that direction, but it is estimated that the government will still own about 27% – 37% of GM after this initial process is complete, depending on how many additional shares are allotted.
So did the government earn any cash for its taxholders in rescuing General Motors? Not yet. While the potential losses from letting a major company fail cannot be easily calculated, the investment in GM itself is still in a state of negative return in terms of actual dollars, so expect America to be rooting for a dramatic increase in share price in the coming months and years. From the Wall Street Journal:
“With Wednesday’s sale, including the overallotment, the Treasury lost roughly $4.5 billion on GM shares it acquired at an effective cost of $43.84 apiece. The Treasury would need to reap $26.4 billion, or an average of $52.79 a share, on its remaining stake to break even.”1
Like yesterday’s post, today’s Dinner Topic makes for great debate about the role of government. On one hand, the government stepped in and invested taxpayer’s money into a failing company with incredible amounts of fixed costs due to guaranteed pensions. The argument for the involvement is that keeping a large company alive, even at the expense of the taxpayers, will benefit the country in the long run. On the other hand, the government took a look at a profitable business (caffeinated alcoholic beverages) selling a legal product but with questionable ethics regarding marketing and the product’s use and decided it had to be shut down. How do you feel about the role your government plays in meddling with business? Bring it up at tomorrow’s cocktail party and watch the fireworks!
Read on:
WSJ.com – GM Shares Up Around 8%
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