Taxpayers Ripped-Off Again by GM IPO

The Federal Government has proven once again their total incompetence, or indifference, when it comes to investing our tax dollars with the Treasury Department’s apparent acquiescence to the ridiculous structure and pricing of the new Initial Public Offering (IPO) of General Motor’s stock set for this week.

The Treasury, which holds a 61% ownership stake in GM, has reportedly agreed to an IPO of 365 million shares at a price range of $26 to $29 per share, but a number of investment banking specialists, and financial pundits, have gauged the value of the offering at as much as $44 per share. This is not uncommon in itself; IPO’s are typically designed to provide huge initial returns to the big money elite who get to play in the beginning, buying low, and then selling quickly as the rest of the market clamors to be involved, and then either loses their shirt at the top or finds themselves stuck with a stagnant aftermath. The good-old-boy network appears to be firmly in place, and the same Wall Street and Main Street crooks that caused the financial debacle that took down GM, and so many other companies, and jobs, and ultimately American working people, and were then bailed out by the US taxpayer, stand to make BILLIONS off of this deal.

Besides this obvious inequity, there are a number of other issues to deal with here, based on the large differential in the initial offering price and the huge profits to be made by selected interests. In the first place this IPO will not add substantial capital to GM’s balance sheet since it involves the sale of so much existing stock already issued and held by the Federal Government. The BIG question then is why is Treasury selling GM stock, owned by the taxpayers, at a significant loss, when demand is so high and the price is so low? The Federal Government initially gave GM $50 billion to save the company. Approximately $7 billion was in low-interest loans (which have been paid back, reportedly), and the remaining $43 billion was for a 61% stake involving approximately 930 million shares of stock in the company. At that price taxpayers paid approximately $46.25 per share. As currently structured, the IPO will liquidate 280 million shares of the Treasury held stock, about 30% of total holdings. At a price of $29 per share that will return approximately $8.1 billion, about 19% of the $43 billion investment, but at a loss of $16+ per share. Given a choice, even a high school dropout probably wouldn’t take that deal.

At a price of $29 per share both the government and GM are leaving a huge amount of money on the table, as much as $5.4 billion assuming a value of $44 per share, which could be used to bolster GM’s balance sheet and create jobs, as well as make taxpayers whole again.

Even the Chinese stand to make billions from this deal. A large block of stock is being sought now, and will probably be awarded to Chinese interests hoping to foster relations, and no doubt create new jobs in new GM plants in China.

Finally, with the sale of existing shares and the issuance of additional new shares, the taxpayer’s interest in GM will be significantly reduced to no more than 40%, a minority, non-controlling interest. For the Treasury to recoup the remaining $35 billion investment made by taxpayers the remaining 650 million shares would have to be sold at nearly $54 per share, not a likely scenario in the foreseeable future. Of course we will still be funding the company at zero interest, while we borrow more money to finance the deficits created by this misguided policy at three to four percent per year from the fat cats and foreign financiers who will also grow fatter from this IPO.

At this point it appears that the American people lose again, all for the benefit of financial cronyism. There is some small chance that the IPO will be adjusted to reduce the inequities, but the big money investment banks and brokerages stand to make billions, and I doubt that we can expect the Federal Government to look out for our best interests.

More insanity from The Edge… Thanks for your Input.

James McV

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About James McV

Writer - Sailor - Adventurer - Philosopher - Idealist - Realist.... After a twenty + year career in the outdoor recreation and marina business I took off some years ago to sail around the world and re-create myself..... Now I'm back and in the process of writing two books, and paying attention once again to the world around me.
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One Response to Taxpayers Ripped-Off Again by GM IPO

  1. James McV says:

    OK… GM announced yesterday that they will increase the price on the IPO to somewhere in the neighborhood of $32 – $33 per share (a 10 – 15% increase) AND increase the total offering to 478 millin shares (a 30% increase)… a small retreat from their earlier insanity, but definitely not in the best interests of the taxpayers who will still lose on the offering. The pundits on CNBC hailed the move as “increasing the profits to the government and taxpayers”, BUT there is still NO PROFIT. The taxpayer / government shares will still be sold at a lose (-$12.oo/share vs -$16.00/share), the additional shares being issued will effectively dilute the remaining taxpayer stake to as low as 26% (from 61%), the tax payers will be upside-down (negative) $10 billion after the sale, and remaining shares will need to be sold for at least $55/share for the investment to breakeven…… The Treasury Department has commented that they “want to be out of the car business”, obviously they should never have been in it, and don’t care how much of OUR money they give away in the process.

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