GM Offers U.S. a Majority Stake

[steven johnson]

Source: Wall Street Journal

Business
APRIL 28, 2009
 
GM Offers U.S. a Majority Stake
Bondholders Rebel at Proposal; UAW Would Wind Up With 39% Ownership
 
 By JOHN D. STOLL and SHARON TERLEP
General Motors Corp. outlined a new turnaround plan that would leave the U.S. government controlling the auto maker, as it set up a showdown with bondholders that could determine whether the company lands in bankruptcy court.

Under the plan, GM is asking the Treasury Department for an additional $11.6 billion in loans, on top of the $15.4 billion it has already received. It envisions giving the government at least half ownership of the company as payment for half of the loans.

At the same time, GM said it would use stock instead of cash to pay off half the $20.4 billion it owes a United Auto Workers fund to cover retiree health care. That stock would leave the union owning about 39% of GM.

The upshot would be the transformation of a troubled American icon, leaving it in the hands of the government and its main union.
The situation -- fraught with complications and potential conflicts -- comes on top of the federal government taking major stakes in banks and insurer American International Group Inc.


Read more: http://online.wsj.com/article/SB124083476254259049.html

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It appears the bondholders will take a bath with the new plan.

gm's proposal would give bondholders next to nothing

General Motors Corp., once the beacon of American capitalism, will be owned almost entirely by the U.S. government and the auto workers union as part of a survival plan to avoid bankruptcy that has Ottawa also looking at taking an equity stake.

The plan needs to be approved by government and bondholders, who are likely to be unhappy about receiving just 225 shares of GM in return for every $1,000 worth of bonds.

Among the debt holders are the U.S. government, which would end up with 50 per cent of the company if it accepts the debt-for-equity swap, and the United Auto Workers union, the potential owner of another 39 per cent of GM if it agrees to allow a new health-care trust fund to be financed with GM shares.



Washington, union to own GM under plan

[bluestateguy]

1. This is what most DUers wanted, right? Effectively, nationalization?

My opinions are mixed.

[liberalpragmatist]

2. Well, it offers the possibility of a return on taxpayer investment

Just like how the government actually made a profit on the Chrysler bailout in the '80s. Ideally, this is a temporary arrangement for a few years and when the government sells its shares, it returns to private ownership.

Frankly, this is what they should do with the banks.

But I realize there are some potential conflicts of interest here - for example, does this ultimately give GM a competitive advantage over Ford, which has actually been doing a really good job restructuring and revamping their product line?

[w4rma]

11. Good! This is absolutely what should be done with the banks, also. (nt)

[primavera]

4. Well, no

What I wanted was effective regulation of the private sector so that the taxpayers wouldn't have to come along and bail them out. Barring that happy scenario, I don't want the taxpayers to have to write blank checks to bail the private sector out without any reforms or accountability so that they can go right on pursuing the corrupt practices that got us into this mess. So, no, nationalization isn't what I wanted, but the authority to sternly redress past misdeeds and ensure that they are not repeated again in the future, yes, that's the second best option to which I felt the taxpayers were entitled.

[sythe200]

9. I think that

instead of the government bailing people out they should let them fail. Taxpayers shouldn't have to bail anyone out not only because bailouts are unconstitutional but also because of the moral hazard. If companies think that the government will bail them out if they make a mistake they will be a lot more likely to take big risks. No authority should be needed to redress misdeeds. All the government needs to do is let businesses fail.

[Odin2005]

10. I think you are at the wrong website.

[cliffordu]

12. You could have said all of that with one sentence:

I dunno a fucking thing about fuckall.

[harun]

16. System doesn't work that way because if the gov't let enough

businesses fail, and say the unemployment rate went up to 20% nationally, there wouldn't be a gov't anymore. They would sack the whole gov't and start anew. So the gov't is always going to try to keep itself in business as well, naturally.

We live in a Corporate Representative Republic of Managed Capitalism.

[freemarketer6]

.

[freemarketer6]

18. Then we're in 1931 on steroids, and folks like you will just say

"oh, well...". If everyone goes under, there's nothing left.

[No Elephants]

20. Which provision of the Constitution do bailouts violate?.

[MilesColtrane]

3. I'd be happier with a reimbursement for the '85 Blazer I paid for. (once to the dealer...

...and twice to mechanics)

[MidwestTransplant]

5. Geee I'll be sure ot invest in GM at the open.

[Odin2005]

6. OMG!!! *Jaw Drops*

the Pukes are gonna be screaming "THE COMMIES ARE COMMING!!!" in the morning...

[alcibiades_mystery]

7. Union and Government Owns General Motors

Heh heh heh...who said that thing about selling the capitalists the very rope they hang themselves with?



Capitalism admits its utter failure, goes hat in hand to labor and government for survival. Ya gotta love it.

[DatManFromNawlins]

17. You are delusional

Capitalism had nothing to do with GM's struggles. Not abiding by the rules of business in a capitalistic financial environment is what got them in this mess. And just as stupidly, they are now looking once again outside the rules to bail them out, at the cost of losing control of the business to a bunch of bureaucrats who have zero qualifications to run such a business.

It will not end well for them precisely because they haven't played the game correctly.

[alcibiades_mystery]

21. This is what all ideologues say

You sound like the unreconstructed Leninists who say "Well, the Soviet Union failed because it wasn't really pure communism, blah blah blah." They actually have a good argument to make within a Marxist discourse. And you probably have a good argument to make within a capitalist discourse. But the result is the same: failure of the system. Unregulated capitalism tanked the whole world economy over the last eight years. It is a failure.

[Selatius]

8. The senior management should be entirely removed. Sack them all. Put the UAW in charge.

Put in some fresh management that listens to the workers. Better yet, management that is accountable to the will of the labor force that runs all the factories. If they don't want to listen to the workers, then they should be voted out.

[harun]

15. With the gov owning 50% and the UAW 38% the mgmt WILL do what

they want.

This will be fascinating to see how this unfolds. Without a change in Design and Engineering philosophy they still won't sell any more cars. If they get change there, and they end up with a working company, this could be a game changer.

[trof]

13. There go my GM Senior Notes.

Crap.
I retired in 1999.
Back in 2004 I got out of the (common) stock market.
Went to debt instruments of solid, blue chip companies that were paying decent interest rates.
Like GM, Ford, etc.


I have 1000 shares of GM Senior Notes that pay about 8% return quarterly.
I'm getting about $500 per quarter.
The issued par value was $25. I paid about $20 per share.
When the notes are redeemed, GM has to pay $25 per share.
Pretty good deal, hunh?
Except...if they declare bankruptcy I'll lose that investment and get some shares of 'new' GM common stock in exchange.
Worth about bupkis.
I'm screwn.
woopee

[No Elephants]

19. I'm so sorry. I hope it works out for you somehow.

[trof]

22. Thanks. It won't.

[Abq_Sarah]

23. And people here

Are cheering your loss.

[Yupster]

24. I think the bondholders will vote this plan down

It's just not a fair deal for them.

The bondholders like you are being asked to forgive $ 27 billion in debts.
The government is being asked to forgive $ 10 billion.
The union is being asked to forgive $ 10 billion.

The bondholders are being offered 10 % of the new company.
The government is being offered 50 % of the new company.
The union is being offered 39 % of the new company.

Obviously the bondholders are not being treated fairly, and they will vote down the plan and take their chances for a more equitable deal from the bankrupcy court.

Notice though that the current stockholders are screwed either way. If the company goes bankrupt they get nothing, and if the deal is accepted, they get 1 % of the new company.

[xchrom]

14. hopefully this will protect workers jobs. nt