Thursday, November 18, 2010

The GM IPO: A Taxpayer Screwjob

And when the government, and a government owned and operated entity is involved, you know the one bending over with a sigh, and getting ready to take it, are the taxpayers.

Listen to the euphoria:

General Motors is returning to life as a public company Thursday with a stock offering worth potentially $23 billion, ending the government's role as majority shareholder and closing a remarkable chapter in American corporate history.

The U.S. government should make about $13.6 billion when GM shares start trading on the New York Stock Exchange. The federal Treasury is unloading more than 400 million shares of GM, reducing its stake in the company from 61 percent to about 33 percent.

The IPO could wind up as the largest in history. GM set a price of $33 per common share on Wednesday, a day after it raised the number of shares it will offer to satisfy investor demand. When the U.S. government and other owners sell their shares, they'll raise $18.2 billion. GM will raise another $5 billion by selling 100 million preferred shares at $50 each.

Together, the sale of common and preferred stock will bring the deal's value to a record $23.2 billion.

Assuming all the shares are sold at the price set by GM (and the government), of course...

But you would think it's raining gold from the way the media has been breathlessly extolling the success of the "new GM", and the bailouts, using this IPO as a barometer. Unfortunately, our masters of the information gateway are leaving some important facts at the the doorstep:

In the stock offering, the government stands to make $13.6 billion if it sells 412 million shares, as planned, for $33 apiece. It will still have about 500 million shares, a one-third stake. It would have to sell those shares over the next two to three years at about $53 a share for taxpayers to come out even.

The total bailout was $50 billion.
GM has already paid or agreed to pay back $9.5 billion. That comes from cash and payments related to preferred stock held by the government.

So let's review:

-taxpayers are still in the hole for $50 billion. Whatever GM has paid back was in the form of additional government loans used to pay off their debts, so they're stealing from our left pockets to fill our right. And "promises"? Please, don't insult me, OK?

-assuming all goes as planned and the market obeys Obama's orders, the taxpayers are still over $36 billion in the hole on this deal. The assumption above that the value is going to rise by almost 2/3rds in two years in a volatile economy with a real unemployment/underemployed rate of closer to 17% is a stretch - and that's me being polite. It's the kind of stretch that gets civilian bankers tossed in jail should they make such a recommendation to their clients. UNLESS...

-the government changes the rules, or gives GM additional funding, or by legislative fiat alters the playing field in the US automotive market in order to protect the politician's investment in GM. Can anyone say "crony capitalism"? Sure, overall it would wreck the majority of the American car industry, destroy us competitively abroad, and cost tens of thousands of jobs, but when have the facts gotten in the way of a liberal government?

-And finally, what will happen come 2012, when a Republican president and Congress decide they want nothing to do with "Government Motors", and either end the subsidies or decide to dump the shares? Either way, a major devaluation and a loss, again, to the American taxpayer.

Despite the media/politician cheerleading, this IPO is not any indication of GM's renaissance - it's yet another symptom in the disease that is socialism that is invading the American body politic. The failure of this IPO - and GM - would be the healthiest sign this economy can produce, in the long term.

Oh - and have you ever seen the media cheerleading a stock that has actually been a money-maker, or indiciative of a strong company/sector? Yeah, me neither. They're all johnny-come-latelys that use other people's money to buy high, and sell low.

Stay away from this POS IPO. And hold on tight to your wallet...

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