Treasury To Sell GM Stake, End Myth Of A Profitable Auto Bailout
04-19-2011, 04:15 PM
#1
Treasury To Sell GM Stake, End Myth Of A Profitable Auto Bailout http://blogs.forbes.com/steveschaefe...-auto-bailout/
Amid the fanfare of General Motors’ massive initial public offering last November, optimists about the potential for the automaker’s stock suggested that if the company continued to put up improving sales and profitability figures it might rally to a point where the U.S. taxpayers would wind up profiting on the 2009 bailout.
That possibility can just about be put to bed. According to reports from Reuters and the Wall Street Journal, the government is prepping a summer sale of its remaining shares in GM, and with the stock languishing below its IPO price the likelihood of unloading the position at the $53 per share that would render the rescue of the automaker profitable has faded.
Of course, at the time the bailout loans were made to GM and fellow basket case Chrysler, the notion that any of the money would be returned to government coffers, let alone deliver a profit, was highly suspect. In that vein, the fact that the Treasury was able to collect anything is a bonus. (See “Treasury Cashes In Another Bailout Lotto Ticket.”)
The glass half-empty view on the other side of the ledge centers on the optimism swirling when the automaker went public at $33 a share in November amid improving sales and with a far lighter debt burden than before its bankruptcy. Then, some figured the rally to the break-even point was a matter of when, not if, but geopolitical unrest drove oil prices higher, car sales stabilized somewhat and GM’s CFO Chris Littlefield stepped aside.
Now, with GM shares wallowing below $30 – down 1.4% to $29.55 Tuesday – the Treasury may be eyeing a time when it can get out without any further damage. A lock-up period following the IPO ends in May 22, and as the WSJ reported, GM’s shares:
could become further depressed after investors holding bonds of the now-bankrupt “old-GM” receive warrants and stock for existing GM shares. That will happen April 21.
Treasury officials haven’t contacted GM about a target date for the sale, a person familiar with the matter said. A sale in May is unlikely because Treasury would need time to put together a deal once the May share sales restriction lifts. July is unlikely because investors would likely want to see results from GM’s quarter ending June 30. That leaves the months of June, August and September as the prime targets for an offering.
via U.S. Weighs Summer GM Stock Sale – WSJ.com.
So, that leaves the Treasury needing share of GM to almost double and gain more than 79% over the next two-to-five months in order to keep its investment in the automaker out of the red. Wall Street analysts, certainly not infallible, mostly rate GM a buy or better, but even the most optimistic only has a $50 price target while the median sits at $43.
General Motors next reports earnings in mid-May. Rival Ford Motor, which did not require a government bailout thanks to some fortuitous borrowing prior to the financial crisis, is set to release first-quarter results April 26.
That possibility can just about be put to bed. According to reports from Reuters and the Wall Street Journal, the government is prepping a summer sale of its remaining shares in GM, and with the stock languishing below its IPO price the likelihood of unloading the position at the $53 per share that would render the rescue of the automaker profitable has faded.
Of course, at the time the bailout loans were made to GM and fellow basket case Chrysler, the notion that any of the money would be returned to government coffers, let alone deliver a profit, was highly suspect. In that vein, the fact that the Treasury was able to collect anything is a bonus. (See “Treasury Cashes In Another Bailout Lotto Ticket.”)
The glass half-empty view on the other side of the ledge centers on the optimism swirling when the automaker went public at $33 a share in November amid improving sales and with a far lighter debt burden than before its bankruptcy. Then, some figured the rally to the break-even point was a matter of when, not if, but geopolitical unrest drove oil prices higher, car sales stabilized somewhat and GM’s CFO Chris Littlefield stepped aside.
Now, with GM shares wallowing below $30 – down 1.4% to $29.55 Tuesday – the Treasury may be eyeing a time when it can get out without any further damage. A lock-up period following the IPO ends in May 22, and as the WSJ reported, GM’s shares:
could become further depressed after investors holding bonds of the now-bankrupt “old-GM” receive warrants and stock for existing GM shares. That will happen April 21.
Treasury officials haven’t contacted GM about a target date for the sale, a person familiar with the matter said. A sale in May is unlikely because Treasury would need time to put together a deal once the May share sales restriction lifts. July is unlikely because investors would likely want to see results from GM’s quarter ending June 30. That leaves the months of June, August and September as the prime targets for an offering.
via U.S. Weighs Summer GM Stock Sale – WSJ.com.
So, that leaves the Treasury needing share of GM to almost double and gain more than 79% over the next two-to-five months in order to keep its investment in the automaker out of the red. Wall Street analysts, certainly not infallible, mostly rate GM a buy or better, but even the most optimistic only has a $50 price target while the median sits at $43.
General Motors next reports earnings in mid-May. Rival Ford Motor, which did not require a government bailout thanks to some fortuitous borrowing prior to the financial crisis, is set to release first-quarter results April 26.
