General Motors Corporation (NYSE: GM) is getting closer and closer to what is an obvious bankruptcy with the June 1 deadline looming. This morning came the news that GM’s bondholders were now accepting a new better deal than what had been recently rejected. This had shares trading higher, but the new notion out of the administration is that the common shareholders are likely to have little to no residual value remaining in the New Co.
This total wipe-out of the common holder is actually more in-line with historic bankruptcies than what we had been prepared to expect as the debt offer expired. The debtholders felt they were getting far too little and the common holders were said to be getting 1% of the remaining GM New Co. It seems that is now different and is not going to change the capital structure laws quite as much as seemed to be the case just yesterday.
There is now word that GM’s New Co. stock is not going to trade as a public company for another 6 to 18 months. That won’t just represent a stock halt. That would be a cancellation, and any residual value for parties would effectively not be realized for some time.
If you ever watch any of the cheap horror movies, you already know the basic common formula: a bad plot, lots of killing and some cheap screwing. Being a holder of common stock from here on out is likely to make you feel like you got the cheap horror plot up and down.
The notion in the public is that GM’s new name is Government Motors. That may be true. But if you are a holder of GM’s common stock, then this is going to look more like Goner Motors.
Here are the companies we think can replace GM in the DJIA 30 as the replacement component, and we even dispelled a few others which some are hoping would become the next DJIA component.
Many have said that This $1.00+ stock represents nothing more than a long-term call option or a warrant with little to no real value. GM is starting to look more and more like a put option.
JON C. OGG
MAY 28, 2009