By on October 28, 2010

News that the government will sell only $6b-$8b worth of its GM equity has been joined by an even more surprising GM IPO announcement: GM will buy the Treasury’s entire $2.1b holding of preferred stock in the initial offering. GM has not announced how much it will pay for the stake, and the Detroit News reports that it’s not yet clear if GM will also buy some $400m in preferred stock held by the Canadian and Ontario governments. We’re also getting word via Twitter that GM will put $4b in cash and $2b worth of its stock into its overdrawn UAW pension fund, as well as making a $2.8b payment to the UAW VEBA account. With a $5b line of credit secured, GM says these and other steps will reduce its debt by $11b over an unspecified timeline. And speaking to Reuters, GM CEO Dan Akerson made it clear what the point of these moves are:

It’s up to people like you and me, the burden we share, that we deliver on the promise and return the investment to the American taxpayers. We are going to do our level best to make that happen, and we will only do that by expanding our industrial base and entering new markets and being a better competitor.

Of course, we’ll have to see what value The General places on the preferred stock to know how seriously Akerson should be taken. After all, talk is cheap and money isn’t. [UPDATE: It appears that GM will buy the preferred stock for $25.50 each, essentially giving the Government its book value of $2.14b]

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14 Comments on “GM To Buy Government Preferred Stock...”

  • avatar

    of course this is The General we’re talking about, so wait for complete details. still…sounds like good news. we’ll see.

  • avatar

    Okay all you GM haters:  try to find a way to make this seem like bad news.

    • 0 avatar

      All you GM lovers:  Are you really taking GM at their word?  You have that faith and confidence that the recent (last 5 yrs) of history proves that, for the most part, when GM makes a claim that it turns out to be accurate?

  • avatar

    As buickman points out so adroitly, on the surface this seems to be great news… but (recent) history tells us the initial announcement is never the final truth when it comes to GM. I wonder where this will shake out.

  • avatar

    “Okay all you GM haters:  try to find a way to make this seem like bad news”
    Is that a rhetorical question?  Oh well, anyway… how come they are funneling $8.8 billion into UAW accounts?  I thought they went through bankruptcy to discharge all of that.  I predict that the way this all turns out is that taxpayers will dump even more money into GM so that banksters and other Wall Street insiders can profit handsomely from a rigged IPO;  then, since the whole thing was designed for short-term insider profit, GM will crash and burn.

    • 0 avatar

      “how come they are funneling $8.8 billion into UAW accounts?” Because they are legally obligated to do so sooner or later, and there are benefits (big savings on interest payments being one) to choosing “sooner”.

  • avatar

    Isn’t the idea of an IPO to raise cash by selling shares to SOMEONE ELSE? If the company buys its own stock, it  has zero net gain in cash. Minus the fees the banks get for the IPO.

    I’m not a banker, but it sounds like one of those Ponzi schemes where on paper it looks like they are successful…  
    it seems to be successful for the UAW, and the banks. So everyone contributing to election campaigns is happy. (and no, I’m not a democrat/Obama hater… much of that BS I blame on “W” since he started bailing them out)

    • 0 avatar
      Chicago Dude

      Preferred stock is called preferred for a reason.  For example, if you decide to skip a dividend payment with preferred stock, that dividend accrues until you pay the whole amount.  And you can’t pay a dividend to common stockholders until you are up to date on the preferred.
      If GM owns all the preferred, then doing all the required payments is just shuffling money from one pocket to the other and no cash goes out the door.  And they can concentrate on the games they play with common stock without having to worry about preferred requirements getting in the way.

    • 0 avatar
      Tricky Dicky

      The idea of an IPO “normally” is to raise cash for the seller of the stock. But this isn’t a normal IPO. Here the imperative is very much on payback of debt to the government for political and brand reasons. GM won’t receive any monetary benefit from the IPO.

  • avatar

    GM”s press release said they will buy the preferreds at “a price equal to 102 percent of the $2.1 billion liquidation amount.” I’ll take a closer look later, but that suggests a small profit for the Feds. They’re also beefing up the pension plan ($6B worth), paying off a VEBA note (like Ford just did), and declaring that they’ve secured a $5B rainy-day credit line. This is all reasonable stuff to be doing now, assuming they can comfortably spare the cash to do it (and apparently they think they can — Liddell is no hack). We’ll know much more when they report their third quarter results, which will probably be right before the IPO (mid-November, in other words).

  • avatar

    It’s up to people like you and me, the burden we share, that we deliver on the promise and return the investment to the American taxpayers.

    Wait, didn’t GM proclaim they already “paid back the loans in full”?

    Whats with the double speak?

  • avatar

    A couple of points about this pre-election window-dressing:

    – the money to redeem the preferred shares is coming out of GM’s massive pool of taxpayer-supplied cash. As someone quipped about the previous loan repayment, “At GM, when we say we’re giving you your money back we really mean it!”

    – “GM says these and other steps will reduce its debt by $11b” translates as, “We will give part of our hoard of taxpayer cash to groups we owe money to.” There’s no magic in this; debt will be reduced because cash will be reduced.

  • avatar

    debt will be reduced because cash will be reduced.

    You are musta be anal retintive kook! And yes, Mr. Abacus agrees.

    GM Ninja Accountants are (maybe, maybe not, hummm) on the move, don’t touch them.

  • avatar

    if not cash, what else would you use to pay down debt, jellybeans?

    if that cash can be invested at a return higher than the interest expense (seen “risk free” rates lately?) then maybe you can spin it as a negative. Unwinding Govt ownership and reducing debt (and interest expense by $500 mn annually) is simply a positive and hardly innovative. The long term viability and/or trustworthyness of the company are another issues.

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