"Treasury's own analysis suggests that the circumstances necessary for the companies to reach market capitalizations high enough for Treasury to fully recovery its equity investments are unlikely," a Government Accounting Office report on the taxpayer-funded bailouts of General Motors and Chrysler found.The problem is this: In order for taxpayers on General Motors to be made whole, GM will have to hit a market capitalization of $66.9 billion.
The highest GM's market cap has ever been is $57 billion -- and that was in 2000, when circumstances were very, very different.
The Treasury Department argues that the problem with this analysis is that market cap is too simplistic of a measure because it simply multiplies the number of shares outstanding times the share price to come up with the value of the company's equity. But all the debt for equity swapping that GM has done to de-leverage its balance sheet has added to the value of the equity without requiring any kind of growth: less debt means more value. The ability of bankruptcy to convert debt into equity will makes comparing pre-bankruptcy and post-bankruptcy market caps meaningless. It's a whole different capital structure.
Looking at enterprise value -- market cap plus debt -- could yield a very different view of just how far in the hole we are with GM. When the company releases the prospectus for the IPO it's been threatening to undertake in 2010, we'll have a better idea of where things stand on the balance sheet.
But still: Our odds of being made whole with GM are close to zero because so much of the cash we've poured into GM has done nothing except plug holes from massive losses.
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Reader Comments (Page 1 of 1)
11-04-2009 @ 1:18PM
ANNE PEARIGEN said...
What a bunch of slugs, and I don't see any reason to not let them fail. They have cost the tax payers too much already. Obama should have let GM and Chrysler go under lang ago. You don't see Ford asking for money and they even posted a profit.