GM Screws Employees, Investors, Government – GM announced a restructuring plan that would basically screw employees, investors and the government while protecting executive pay.
GM’s new plan will cut thousands of jobs, slash shareholder equity by 99%, give the government worthless stock, and screw the company’s bondholders, all in one fell swoop.
The government never should have bailed out GM, just like they never should have bailed out Chrysler back in 1979. That elimination of the downside to business risk taking fueled increasingly stupid decision making in the automotive industry that has left everyone else paying the price for management stupidity.
General Motors could end up being majority owned by the federal government and the United Auto Workers under a massive restructuring plan laid out Monday that will cut 21,000 U.S. factory jobs by next year and phase out the storied Pontiac brand.
The plan, which includes an offer to swap roughly $27 billion in bond debt for GM stock, would leave current shareholders holding just 1 percent of the company.
GM is living on $15.4 billion in government loans and faces a June 1 deadline to restructure and get more government money. If the restructuring doesn’t satisfy the government, the struggling company could go into bankruptcy protection.
GM said in a filing with the U.S. Securities and Exchange Commission that it will ask the government to take more than 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1. The swap would cancel about $10 billion in government debt.
In addition, GM is offering the UAW stock for at least 50 percent of the $20 billion the company must pay into a union run trust that will take over retiree health care expenses starting next year.
If both are successful, the government and UAW health care trust would own 89 percent of GM stock, with the government holding more than a 50 percent stake, CEO Fritz Henderson said in a news conference at GM’s Detroit headquarters.
President Barack Obama’s administration said in a statement that the bond exchange filing is an important step in GM’s restructuring but the administration has not made a final decision about taking stock for part of its loans.
“The interim plan that GM laid out in this filing reflects the work GM has done since March 30 to chart a new path to financial viability. We will continue to work with GM’s management as it refines and finalizes this plan and with all of GM’s stakeholders to help GM restructure consistent with the president’s commitment to a strong, vibrant American auto industry,” the statement said.
Henderson said that although the government would own a majority of GM’s outstanding common shares, the Treasury “hasn’t demonstrated interest in running the company,” but would have someone on the board looking out for the taxpayers’ interest. The task force has directed current board chairman Kent Kresa to replace several board members.
“The shareholders, the VEBA (health care trust) and the government would want to have a someone on the board of directors,” he said.
Deals with the UAW and the Treasury have yet to be finalized, he said.
The struggling automaker said it will offer 225 shares of common stock for every $1,000 in notes held by bondholders as part of a debt-for-equity swap. Henderson said the objective is to reduce GM’s $27 billion of outstanding public debt by about $24 billion. The company estimates that after the exchange, bondholders would own 10 percent of the company.
That would leave current common stockholders with only 1 percent, GM said. Still, GM shares rose 47 cents, or 27.8 percent, to $2.16 in midday trading.
The plans, if successful, would reduce GM’s debt by $44 billion from the present figure of about $62.4 billion.
“We would be substantially less-levered as a company,” said Henderson.
Henderson said if the debt exchange isn’t successful, he would expect GM to file for bankruptcy protection somewhere around June 1, but such a filing would be unlikely very long before the deadline. Bondholders have until May 26 to accept the exchange offer.
And that’s the latest on GM Screws Employees, Investors, Government.
Tags: bailout, economy, gm, gm bankruptcy, gm restruturing
May 6th, 2009 at 1:58 pm
Perhaps we can use a few of the non union employees within Mealer AMC…
February 21st, 2010 at 3:08 pm
You get the feeling that the investment bankers have paid shills to warn about a bond market bubble every month or so in order to get some IPO’s not worth their weight out the door. If you actually buy the bond in the secondary market, the worst you can do is get the yield you bought it at to maturity. But selling them back with 1-2 years left to maturity has been a winning strategy recently. How is this a bubble?