Is GM's Equity Real?
There was a fair amount of blog reporting on GM's IPO papers, focusing on various outsized risks reported in those documents. But for someone who has read a fair number of red herrings in the past, I can tell you these over-the-top risk statements are virtually pro forma. The lawyers don't want any suits down the road about failure to disclose, so every risk up to and including getting kidnapped by evil trolls if you buy the offering are listed.
Via the Accounting Onion, I found an issues I have not seen well-reported. Tom Selling argues that without some accounting shennanigans at its reorganization, GM's equity should be negative. Reading between the lines, it does not appear that he is very confident that the SEC, which is a branch of GM's ownership group, will do much about it.
Ignoramus:
Obama & Co need to get a GM market cap of $70 billion in the IPO in ordewr to break even on the taxpayers’ investment. Ford has a market cap of about $40 billion. Is GM worth that much more than Ford? -- I doubt it, but the market will tell ultimately. The lead bankers said they could price it at this level but it wouldn’t be the first time that bankers fibbed during a bake-off in order to win a mandate.
GM has two advantages over Ford:
1) Post bankruptcy GM has little debt, hence little interest to pay. GM gets to use something like $70 billion in plant and equipment for nearly free. This is why GM has "returned to profitabily." This makes comparing GM and Ford’s recent earnings a bit of an apples and orange’s comparison, but my sense of it is that GM isn’t 7/4x better than Ford on near-term projected earnings. NFW. On comparable total revenue, GM isn't out-earning Ford even without the burden of Ford's interest expense.
2) More operations abroad, on the assumption that that’s a good thing. I guess to make GM a "growth story."
But there’s lot of advantages that Ford has over GM.
The talk is an IPO of at least $10 billion or more which would make it the largest private USA IPO of all time (I believe). That’s a lot of stock to park. Keep your eye on “Use of Proceeds†and how much goes out the door to the UAW – this may not be made clear until we see Amendment #10.
September 20, 2010, 8:59 amNoumenon:
I was disappointed to find that the Accounting Onion is not a nerdy version of the regular Onion.
September 21, 2010, 3:13 pm