Posted on 05/05/2009 9:06:48 PM PDT by 2ndDivisionVet
General Motors Corp on Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union.
The unusual plan, which was detailed in a filing with U.S. securities regulators, would only need the approval of the U.S. Treasury to proceed since the U.S. government would be the majority shareholder of a new GM, the company said.
The flood of new stock issuance that could be unleashed has been widely expected by analysts who have long warned that GM's shares could be worthless whether the company restructures out of court or in bankruptcy.
The debt-for-equity exchanges detailed in the filing with the Securities and Exchange Commission would leave GM's stock investors with just 1 percent of the equity in a restructured automaker, ending a long run when the Dow component was seen as a bellwether for the strength of the broader U.S. economy.
GM shares closed on Tuesday at $1.85 on the New York Stock Exchange. The stock would be worth just over 1 cent if the first phase of GM's restructuring moves forward as described.
Once GM has issued new shares to pay off its debt to the U.S. government, bondholders and its major union, it said it would then undertake a 1-for-100 reverse stock split.
Such a move would take the nominal value of the stock back to near where it had been before the flood of new shares. But in the process, GM's existing shareholders would see their stake in the 100-year-old automaker all but wiped out.
(Excerpt) Read more at globeinvestor.com ...
Having worked in the securities industry for sometime now, the type of plan the article describes is not out of the ordinary.
I’ve seen a number of companies (over the years) file a Chapter 11 Plan of Reorg in which the existing common stock becomes worthless and the oustanding bonds are swapped for newly issued stock.
In these Chapter 11 Plans, existing stock holders are determined (in advance) to rejected the Plan and their votes are not sought. But bondholders are allowed to vote on the Plan as to whether they want to swap their bonds for newly issued stock.
The sham here is that not even bondholders will get the chance to indicate their approval or disapproval of the Plan. Essentially, it’s a cram-down.
How does this work, or is this just for current GM employees
If you bought it at a penny and it rose to two cents, you could double your money.
How can there be any integrity in a “government owned” company. The minute some issue comes up where the government and company would normally be at odds (some alleged civil offense or crime) what will we see? The same government as both prosecution and defense? It is to laugh, then to cry.
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