Taxpayers will take a loss on money invested to keep GM viable
Anyone that follows the automotive industry knows that the only major auto maker in the country that didn’t need handouts from the government to keep afloat during the last few years thanks to the poor economy was Ford. GM needed so much help that the feds ended up owning a significant portion of the company.
Things are doing better for GM today now that most of the bad economy is behind us. GM has announced that it is set to offer $13 billion in stock back to the public from certain stockholders. The funds raised in the sale of common stock in the auto giant will be used to pay back a portion of the taxpayer money that kept GM from going bankrupt.
GM will offer up 365 million shares of common stock estimated to sell in the range of $26 to $29 per share. GM will also reissue 60 million shares of its Series B mandatory convertible junior preferred stock at $50 per share. The underwrites of the sale have the option to purchase from selling stockholders an additional 54.75 million shares of common stock and to buy from GM directly another 9 million shares of Series B stock. The sale has been approved by the SEC.
After the stock is sold the federal government will own 43% of GM and the 365 million shares of common stock up for sale amounts to 24% of all common stock in the company. The IPO values GM at $41 billion. Sadly, Reuters reports that the valuation of $41 billion on GM means that taxpayers will take a loss on the money invested to keep GM afloat. Apparently a valuation of about $70 billion is needed for the taxpayers to just break even. It really makes me wonder why they are selling the stock at a loss. Either the treasury really needs the money or they think the value of the company will not get any better in the short term.
The U.S. Treasury issued a statement saying, "The tough actions that the Administration took to get the auto industry back on its feet and save over one million jobs played a crucial role in putting our economy on the path to recovery. Today's development represents another important step forward in our oft-repeated policy of exiting these investments as soon as practicable and recovering funds on behalf of the American taxpayer."