Why would GM do this?

Question

Why would GM do this? Is it just the only way to get some $$$ from the gov't?

RF

Jerz · Answer

I believe this is the mechanism for the government plan to take a 50% stake, with another 39% going to the UAW, in exchange for the outstanding debt those groups hold (the UAW is owed $$ for healthcare benefits). It's basically like a bankruptcy, wiping out shareholders in favor of creditors who take an equity stake in the newly emerged company. However, the the other difference between the government plan and bankruptcy is that the government plan is not considering traditional rules of the seniority of creditors that would be considered in a bankruptcy case, which is why, similar to the attempted Chrysler deal, some creditors are not happy.

In the end, whether by bankruptcy or government fiat, GM common shareholders are getting wiped out. As they should, since they invested in a business that failed.

In the end, whether by bankruptcy or government fiat, GM common shareholders are getting wiped out. As they should, since they invested in a business that failed.

refurb · Answer

Thanks Jerz.

So the UAW is taking equity in the company in exchange for its health care liability? Wow, so they might lose it all too?

RF

bsd_lover · Answer

I'm not following this clearly - but if GM have made such an application, surely the common shareholders have started dumping GM stock like a hot scalding potato ?

refurb · Answer

Good point bsd!

As of Friday the stock is hovering around $1.50.

Why would it still sell for $1.50 if the stock will be worth $0.01 after GM dilutes it?

RF

refurb · Answer

It would appear that proposed stock dilution might not go through at all. That would explain why people are still buying the stock at $1.50.

But the question remains, why do people think a bankrupt company's stock is worth $1.50? Potential value if the company is acquired?

RF

89nk · Answer

Possibly an outside bidder?

refurb · Answer

Right, so if GM get acquired by another company before it goes bankrupt, maybe they'll make some money?

RF

89nk · Answer

I would think it is a far left side possibility. I am by no means in the plug with the industry.

Jerz · Answer

I can't imagine anyone wanting to buy GM outright, since they'd also be buying the massive obligations and headaches that have put GM in this mess.

Maybe people are thinking that there's value to breaking up the company and selling off component parts?

Why would GM do this?

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