| 777 | Date: Thursday, 28 Oct 2010, 15.00 | Message # 1 |
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User ID: 777
Joined: 18 Oct 2010
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| It’s unlikely that taxpayers will ever see every penny of the $52 billion that the government put into General Motors. But the Treasury Department’s plan to hang onto a good chunk of its 61 percent stake in GM -- rather than sell it all at once during GM’s initial public stock offering -- is a smart move. It's clear that everyone wants the government out of the car business, including the government. But holding onto a meaningful stake until GM recovers fully and seriously boosts its stock price should ensure that taxpayers see more money in the long run.
The New York Times reported that Treasury has cooled off GM’s plan for an IPO that might have rivaled Visa’s 2008 offering as the largest in history, when the credit-card king raised more than $19 billion. Instead, the feds want GM to get the highest stock price possible during its IPO, rather than obsess over the maximum size of the offering.
Here’s the key: The inspector general of the Troubled Assets Relief Program (TARP)
estimates that Treasury would have to sell its 304 million GM shares at an average price of $133.78 per share in order to fully recoup its investment in GM. Since GM’s stock peaked at just $94.63 per share when the economy was hunky-dory back in 2000, government shares sold in the IPO are unlikely to fetch anywhere near that high price. (Some analysts do foresee GM’s IPO pulling an average share price closer to $90 or even $100, though GM plans to split the stock so each share sells for closer to $20 or $25, to draw in more retail investors.)
Instead, The Times reported that GM is heading toward a more modest stock offering; one in the range of $8 million to $10 million. That level of IPO could still let the government reduce its stake to less than 50 percent, and let GM shed the “Government Motors” label. And with some of that sell-off pressure removed, the government can -- if all goes according to plan -- watch GM’s stock price soar in coming years, then reap a bigger payday for taxpayers when it does decide to sell.
The clear takeaway is that the government, following the lead of Wall Street analysts, is now suddenly bullish on GM and its prospects. With GM having shed its monstrous health and retiree-pension liabilities, plus slashing billions more in production inefficiencies, the company seems poised to thrive when car sales finally recover. And don’t forget products: From Buick to Cadillac to Chevrolet, there’s a lot of upside in GM’s future product pipeline.
And please, commenters, not another rehash of how GM should have been allowed to wither and die. It’s done; over. The only hope now is that We the People get as much payback as possible. The government and people placed a huge bet on GM. For now, it’s best to let that bet ride, and hope there’s something resembling a jackpot in GM’s future.
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