Get out your checkbook — GM’s IPO is just around the corner. This report explains:
The Treasury is seeking to sell roughly $6 billion to $8 billion of its GM stock through the IPO, with other sellers taking the entire deal to a total of roughly $10 billion to $12 billion.
The government paid $40 billion for its stake, and risks political fallout if the share price sinks due to releasing too many shares at once on the market. That could send a signal the Obama administration won’t recoup its investment.
Yes, contrary to the administration’s spin, there is a strong likelihood of the shareholders not even coming close to getting their money back. In the short term, the numbers could look particularly grim:
Linda Killian, a principal of Renaissance Capital LLC in Greenwich, Conn., which specializes in IPO research, estimates GM’s valuation at $50 billion to $70 billion, yet added that the chances of the government breaking even are “low.”
Because the IPO should take place at a discount to the market price, the government is likely to show a big loss in realized proceeds on its sales on IPO day. If the IPO is priced at the $50 billion level, that would equate to a U.S. loss of approximately 38% on the first batch of shares it sells.
But not to worry; the former car czar, Steve Rattner (who’s about to enter a settlement regarding a kickback arrangement with the New York State pension fund and “accept a multi-year ban from the securities industry and pay a fine of more than $5 million”), says that our losses will only be in the “single-digit” billions. I’ll hang on to that rosy scenario.
The real problem is that GM is not all that attractive so long as it remains a subsidiary of Obama, Inc.
“Would I jump at the GM deal? Probably not,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. He said the “overhang of government ownership” results in a “management straitjacket” that could require GM executives to “get permission every time they want to extend a bonus to somebody.”
Robert Pavlik, a senior partner at investment advisers Banyan Partners LLC in Palm Beach Gardens, Fla., said he “wouldn’t put my clients’ money into it” because GM still carries the “stigma” of both bankruptcy and government ownership as well as recent top-management turnover.
“What’s going to drive their sales? The Chevrolet Volt? I think that’s going to turn out to be more of a publicity stunt than anything else,” Mr. Pavlik said.
This raises at least two troubling issues. First, the UAW is also going to get some of its (that is, its members’) money back in the IPO. It has a 17.5 percent stake in the company. So where is that money going — directly into the pension plan, or is the union taking some off the top? You know, for political contributions, union bosses’ salaries, and the upkeep of its swank golf course.
But the bigger issue is this: by stepping into the car business, the government is now in the position of hawking GM stock, singing the praises of the GM Volt, and persuading investors to put their money in this company as opposed to other businesses. There is something unseemly in all that. The administration finds itself in a classic case of conflict of interest. On the one hand, it is the federal regulator/pension guarantor/SEC monitor, and on the other, it is running the GM “road show” to sell, sell, sell GM. It is the natural and inevitable result of a move that should have never been made — namely, the injection of the U.S. government into the car industry.
All of that, plus the potential for billions in losses, should remind us why the Obama car bailout is a lemon.
