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Thursday, November 18, 2010

About That GM IPO...

Bloomberg has an interesting analysis of the fallout of that IPO.
GM’s owners, including the U.S. Treasury, sold at least $15.8 billion of common shares at $33 each, making it the second-largest U.S. IPO on record after San Francisco-based Visa Inc.’s $19.7 billion sale in March 2008, a statement and data compiled by Bloomberg showed. An overallotment option and a sale of preferred shares may boost the total raised to $23.1 billion, more than the $22.1 billion sold by Agricultural Bank of China Ltd. in the largest IPO of common stock in history.
Sounds pretty good, right? I mean, I don't know about you, but I wouldn't turn my nose up at between $15.8 billion and $23.1 billion.

There's a catch, though. Over the last two years, GM has received around $50 billion in bailout loans (the Bloomberg article puts it at $49.5 billion, but what's a measly $500,000,000 between friends?). As a result... well, I'll let the Bloomberg article speak for itself:
The Treasury needs to sell all of its GM shares at an average price of $43.67 to break even on its investment, data compiled by Bloomberg show.
GM closed at $34.19 today, so we only have to hope it goes up at least 27% and then stays there while the Treasury unloads somewhere between 500,065,254 and 553,847,273 shares of common stock (which is roughly 37% of the outstanding shares of GM). All without crushing the price per share of GM.

Put another way, it's P/E ratio needs to drop to about 5.89. Now, looking at the following facts from the Bloomberg article:
GM, which lost $82 billion from 2005 to 2008, was valued at an average of 10.3 times profit from 2000 through 2004, monthly data compiled by Bloomberg show.
At $33 a share, GM is valued at 7.8 times this year’s earnings, based on its net income in the first nine months of 2010. Dearborn, Michigan-based Ford Motor Co. trades at 8.1 times analysts’ estimates for 2010 profit, the data show. Ford has been the world’s most profitable automaker this year through September.
This leaves me with no real hope that we, the taxpayers, will see our investment pay off.

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