Great News – Gov’t To Lose Money On GM IPO
The announcement that General Motors would sell shares in an initial public offering was greeted as vindication for the federal government bailout of GM. The IPO would be a way to pay back taxpayers and even to generate a profit for the government.
But it is not looking that way.
First, GM will not even begin its “road show,” the time when it starts trying to convince major institutions about the IPO, until after the November elections. How convenient.
Second, although the issue will not be priced until right before the offering is effective, current indications are that the price will be below the per share investment of the government, meaning that if the government sells shares to the public as part of the offering the government will realize a loss on those shares.
As reported by Reuters:
The U.S. government is likely to take a loss on General Motors Co in the first offering of the automaker’s stock, six people familiar with preparations for the landmark IPO said.
Subsequent offerings of the government’s holdings may be profitable depending on how investors trade the newly listed stock, the sources said.
But the question of whether taxpayers are ultimately made whole on GM’s $50 billion bailout could be left open for years, the people said.
It could take more than three years for the Treasury to sell down its remaining stake in GM after the IPO, one person said. That would push a final accounting into the next presidential term.
This reminds me of the joke about the businessman who loses money on every sale, but makes it up on volume.
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Frankly, I'm somewhat glad the IPO will loose money. Imagine if this whole Govt. bailout of GM actually did make money, it would become exhibit A as a reason for the Govt. to bailout any industry that fails. The more painful this is, the less likely they will be able to sell it as a success in the future.
I believe the joke about volume first appears in Heller's Catch 22. There may be an earlier source.
I believe any one involved in selling stock with this Disclosure should be jailed for fraud.
"We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan."
Anyone who spent other people's money on this should lose their licence and be barred from Securities trading for life.
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