Ron Bloom, the defacto head of the government’s auto restructuring task force (or what’s left of it), tells Reuters that the government wants to hurry up a GM IPO in order to get out of the “investment” as soon as possible. And as we’ve predicted, this means taxpayers will be getting the fuzzy end of the lollypop.
Private markets would like to see us exit this investment, and I think they will be more comfortable if we’re on a sustained path out the door than if they think we’re going to try to market time it to maximize return.
And really, why would taxpayers expect any kind of a return from $50b dumped into one of the most prolific wealth destruction machines in recent economic history? So when will this IPO/giveaway take place?
I would anticipate that if the fresh start (accounting) is complete, if you put numbers on the board, if things are going well and the capital markets are open, that in some point in the fourth quarter the markets will be open enough to do a successful IPO… Fritz has talked about back half of 2010 as a potential timing. Whether or not we feel we have enough visibility by June to have that conversation, I don’t know… Clearly we’re going to be smarter in June than we are today. Whether we feel we have enough visibility on the IPO or not, I don’t know.
Just to recap, the company’s CEO is saying Q2 2010, the government overseer (who essentially controls “our” 60 percent stake in the company) says Q4 2010 and the chairman of the board is saying it’s too soon to even think about an IPO. Not that the dissonance matters especially… Bloom is going to be the one who pulls the trigger on any IPO. Besides, Bloom agrees with Whitacre in as much as “Ed said that he thought the company ought to be focused on making money and paying us back and not particularly on the IPO. The IPO is a consequence, not a cause.”
But if Bloom knows what GM management should be focused on, does he know that his responsibility is seeing that taxpayers get something out of an IPO? Bloom mentions a forecast by Deutsche Bank’s Rod Lache estimating that GM could be worth $42b based in part on the value of bonds cashed in for equity during bankruptcy. In that scenario, taxpayers would get about $25b out of the $30b of bailout debt it converted to equity in bankruptcy. But, according to Bloom:
Nobody believes that’s the truth because it’s not there until you can sell it and we’re a long way from selling it. But if you want to just observe it, that’s the observed truth by a smart Wall Street analyst… Our benchmark of success is zero. We don’t think it’s proper over the long term for the government to own an industrial company. If you want to be out, you should be out.
And yet, Bloom doesn’t see the government being able to cash out its entire position with GM’s first IPO. Rather, his goal is to see the government stake shrink to a minority position. So taxpayers are staring down a short-term haircut and no long-term disentanglement. Are these guys for real?