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Thursday, May 07, 2009

GM Mega-Dilution

GM has filed a paper (here) with the SEC, "PRE 14C" which lays out a plan to dilute its common stock, by issuing new shares to the U.S. Treasury in exchange for debt.

GM will issue enough new shares so that the total number outstanding will be 62 billion.  There are currently about 610 million shares outstanding.  This is a dilution of 100:1.  This will reduce the "par value" of $1.66 to $0.01/share.  They will then do a reverse split of 1:100, reducing the outstanding shares back to 620 million.  

The effect of this is that current common stock holders will be wiped out.  

Example: you own 1000 shares which are currently worth around $1600.  Your 1000 shares will become 10 shares, worth about $16. total. That's a loss of 99%.

3 comments: said...

Stock holders should get a hold of the board and the man calling the shots... President Obama. Let him know how they feel about his cash-killing decisions.


Anonymous said...

I'm afraid that's what usually happens in bankruptcy -- current shareholders lose pretty much everything. There's a lot wrong with this deal, especially the way that bondholders are getting shafted while the UAW makes out like a bandit (that is, if the thing actually works) but current shareholders have no reason to gripe. This is what happens when a company you own goes bankrupt.


Anonymous said...

Somewhat off-topic:

Ford planning on stimulus money:

Ford Motor Co. is expected to apply for federal stimulus money on Wednesday for a test of electric vehicles that would include Dallas utility Oncor.
Oncor would get many of the cars for free and must commit to invest $15 million to install high-tech meters and build recharging stations.

The company already has a program to install the new meters across its territory, so the test would end up costing Oncor about $1 million, a sliver of the utility's annual budget.

The utility would then try to negotiate a cheaper nighttime rate with its electricity provider. (Oncor doesn't use sister company TXU Energy; it got a lower rate from Liberty Power.)

A.K.A. (reader Kevlar):
Ford sells the electric cars, Oncor gets electric cars nearly free, and the tax payers pay for it all. Is this how the U.S. voter expects "stimulus" money to be spent?

The good news is in a very few number of years, Congress via the EPA is going to force these electric vehicles on the U.S. car buying public (ready or not) whether they are wanted or not.