General Motors' reverse split plan suggests a bleak outlook

If you can't get the stock price to go up, you can always try playing the Jedi mind trick game of stock splits, reverse splits and stock dividends.

In a filing with the SEC, General Motors (NYSE: GM) disclosed its plan to effect a 1-for-100 reverse split of its common stock. The plan is part of an agreement with the Treasury Department that would give the United States government a majority stake in GM in exchange for taking on the company's debt obligations.

Normally reverse splits are signs of desperation that aren't worth commenting on, but in this case, it's an even worse sign than usual. At the current price, a 1-for-100 reverse split would peg each GM share at $185 -- nearly double the all-time high of $93.63 the stock hit in April of 2000.

From a liquidity perspective though, a $185 stock is very pricey. At that level, many companies would be opting for forward-splits to reduce their stock prices. The plan for a 1-for-100 reverse split suggests that the Treasury Department and GM are extremely bearish on the future value of the company's shares, and expect that by the time the reverse split is executed, market declines will lead to a market value substantially below $185 per share.

There are billions of other reasons not to buy GM stock, but this is the latest one. A 1-for-100 reverse split of a $1.85 per share stock suggests that investors are in store for more severe price declines.
Get the latest on cars and trucks
from GM and all brands at AOL Autos.

Reader Comments (Page 2 of 2)

Symbol Lookup
IndexesChangePrice
DJIA-6.6612,496.15
NASDAQ+11.042,850.12
S&P 500+2.231,318.86

Last updated: May 23, 2012: 07:56 PM

Hot Stocks

General Electric

19.180.00(0.00)

Alcoa

8.61+0.12(+1.41)

Apple Inc

570.56+13.59(+2.44)

Google Inc 'A'

609.46+8.66(+1.44)

Bank of America

7.17+0.19(+2.72)

Wal-Mart Stores

64.58+0.85(+1.33)

Exxon Mobil Corp

82.04+0.09(+0.11)

Ford

10.41+0.22(+2.16)

Citigroup

27.15+0.23(+0.85)

IBM

196.12-0.70(-0.36)

Yahoo

15.38+0.09(+0.59)

Starbucks

55.29+1.92(+3.60)

Microsoft

29.11-0.65(-2.18)

Home Depot

48.74+0.48(+0.99)

Learn More About GM Cars

General Motors Brands:
Find Your Next Car

AOL Autos New Cars and Used Cars

DailyFinance Headlines

Benzinga Headlines

TheFlyOnTheWall.com Headlines

BioHealth Investor Headlines

WalletPop Headlines

DailyFinance BlackBerry App

My Portfolios

Track your stocks here!

Find out why more people track their portfolios on AOL Money & Finance then anywhere else.

BloggingStocks Partners

More from AOL Money & Finance

BioHealth Investor Headlines

Page Loaded in 1337817391205 ms.