Monday, June 01, 2009

Nothing for GM Common Stockholders

To no one’s surprise, General Motors Corp. filed for Chapter 11 bankruptcy on Monday. According to published reports, the largest U.S. automaker will issue new stock to the company’s retiree health care trust, the Voluntary Employees' Beneficiary Association (VEBA), totaling 17.5 percent of the equity in the new GM (and warrants to purchase another 2.5 percent). GM also has agreed to give the governments of Canada and Ontario a stake of about 12 percent. The U.S. Treasury and current bondholders will own around 60 percent and 10 percent, respectively. Add the equity shares up and it equals zero for existing common shareholders. Why is the stock selling for 75 cents a share? “Hope springs eternal in the human breast,” said the English poet Alexander Pope.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.


Shorty735261 said...

David, love your blog. GM is supposed to move from the NYSE to the pink sheets today. Any prediction on when the stock will fall to a nickel or less, so we shorts can settle?

Presumably, the remaining holders are in complete denial, and may not sell until their shares literally become toilet paper when the company exits Chapter 11 in 3 months.

At least the cost of the borrows should drop some.

Anonymous said...

Could not agree more. A sign of real market dislocation.

scott said...


i've been trading some GM along the way mainly through options, because i can't short or think of a reason any would ever want to be long.

when will the equity get wiped? does a court do it?

what is a typical timeline for this type of thing? (i'm sure there's a ton a variation.)

David J. Phillips said...

Believe GM stock certificates would make a great Christmas present! I remember buying 1,000 shares of Polaroid when it sold for one-cent post bankruptcy -- looks great framed on my wall. Believe the hobby is called "scripophily."