What Do We Lose with GM's Stock Sale?
I may be a lot of things, but here are two things I’m not: A Wall Street financier. A Buy-American protectionist nutcake.
I do believe, though, that I’ve been in business long enough to know when a business deal stinks. Which is why something’s nagging at me about the recent headline that Chinese automaker SAIC was preparing to buy a portion of General Motors. It’s troubling on several levels—perhaps no less than InBev’s international acquisition of American icon Anheuser-Busch did.
In a capitalist system, owners or boards of directors of companies are—with a few notable exceptions—able to determine when to sell, and at what price. This goes for private companies or those owned by shareholders. That’s the way things ought to be.
GM, though, is a different animal. Without having purchased a single share, I own a piece of it, and if you pay even a dime in taxes, you do, too: 50 billion federal dollars went into keeping the company on life support since 2008.
So I think this might be a case where we “shareholders” deserve a bigger megaphone in discussions about selling a piece of what we can quite accurately call our company. I don’t think some car czar appointed by the White House ought to be able to vote in the boardroom for those of us who own that 61 percent stake in the company. Not without asking us about it, first.
Times Change
Yes, I understand that car-making as we know it could end up being the 21st century equivalent of Conestoga-wagon manufacturing in the 1800s. Maybe buying any automaker’s stock at any price is a short-sighted investment these days, and maybe the Chinese would come to regret it years down the road (after they’ve been able to co-opt all the technology, safety features and efficiencies that seem to be missing in their own cars).
But GM, despite its considerable financial warts, is still an iconic American company. (Remember “What’s good for General Motors is good for America”?) If we’re going to let it go, it ought to be with assurances that we’re getting something truly better out of the deal.
Which brings us to the financial side of this proposed transaction. GM wants to sell about 365 million shares of stock, which would be a stake of about 24 percent in the company. Its prospectus has suggested an initial price of $26 to $29 a share. Some experts say that might even hit $32 a share.
Again, I don’t fully underwrite stock offerings, but I do make a living in the world of business news, where a memory can be a pretty handy thing. It wasn’t but a couple of months ago that the inspector general of the big financial-industry/automaker bailout package reported that GM shares would have to reach $133 and change for the U.S. taxpayer to break even on his investment in the company.
I don’t need a calculator to figure that the taxpayer would be getting zoomed by more than $100 a share on a deal like this.
What’s It Really Worth?
Financial analyses I’ve read suggest that this proposed IPO, which would include the stake being sold to China, would give the company a market capitalization of around $41 billion. But some of those same experts were saying earlier this year that the market cap on any IPO for GM would have to hit $57 billion for taxpayers to break even on their investment. In other words, somebody other than the U.S. taxpayer would be getting these initial shares at a substantial discount—provided GM is able to maintain its recent recovery and actually increase its shares’ value.
Against this backdrop, Ford Motor Co. seems positioned to strengthen its claim to being the American car company. But, as Ford CEO Alan Mulally noted when he spoke in Kansas City a couple of month’s ago, one of the things that has helped put his company back on the road to profitability has been an institutional respect for what its competition brings to the game. Competition, he said, had helped make Ford better.
If this sale doesn’t make GM stronger, that dynamic will be lost. And if that happens, we’re all going to be taking a different kind of bath on this deal. 
Joe Sweeney
Editor-In-Chief & Publisher
JSweeney@IngramsOnLine.com