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How much would you pay for “New GM”?
About a year ago, all of GM’s common stock put together was worth maybe $2 billion, give or take, depending on the day. Go back three years, when things were merely bad instead of catastrophic for them, and people laughed at me whenever I said that GM was going to die. Back then, the stock was worth about $20 billion. For contrast, Toyota Motor at that time was worth more than $200 billion. That’s not a typo.
What would it have taken to buy GM out of bankruptcy, right now? Three years ago, when I first floated the idea to private-equity guys of my acquaintance, the answer would have been in the range of $75 billion. A few months ago, you could have done it for considerably less, depending on how far you could cram down the debt.
But now, We The Taxpayers have gotten suckered into buying the thing as a turnaround play. Barack Obama solved the debt problem by simply killing the bondholders, so he could have gotten the company for next to nothing, as opposed to the 20 to 40 billion dollars it might have cost a private syndicate. (That’s not to say, of course, that you’d ever find private investors stupid enough to do that.)
Instead, we’ve now put $50 billion in cold hard cash into this pig, with a lot more to come. And that’s to buy an asset the market has recently valued at a tiny fraction of that.
So when Obama says he’s going to sell GM back out to the public “very shortly,” what will the price be? Just to break even on his (actually, YOUR and MY) investment in 60% of the company, it’ll have to be almost $100 billion, and that’s ignoring the time value and opportunity cost. To get any kind of a decent return, it’ll have to be way more than $100 billion.
But who would pay even a little fraction of that much for “New GM,” even cleansed of its pension liabilities and long-term debt? New GM, in all candor, is an electric-car startup. I’d pay no more for New GM than I’d pay for Tesla. (And Tesla, according to the speculation which surrounded a capitalization they recently closed, is worth an absolute upper bound of $10 billion, and probably far, far less.)
Barack Obama is in the process of pulling off the biggest ream-job in financial history. Even worse than Bernie Madoff.