3 Strange Things About The GM IPO

Note #3


3 Strange Things About The GM IPO
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This doesn't normally happen: The U.S. government doesn't sell shares on
the stock market.

But two weeks from now, when General Motors has its initial public
offering, the U.S. government will sell a third of the GM shares it
received as part of the bailout of the company.

There are at least three strange things about the IPO, which is
described in a prospectus GM filed with the SEC.

1. The U.S. government is going to sell at a loss.
GM expects to sell its stock at around $27 a share, roughly half what
the government needs to make a profit. That's partly to get out of the
business as fast as possible; the government doesn't want to be in the
car business.

And the government hopes that by selling a third of its stock at a loss,
it will encourage people to buy more stock. Strong demand for GM stock
could eventually allow the government to sell the rest of its GM shares
for a profit.

2. Having the U.S. government as part owner might be bad for business —
that's according to GM. In its prospectus, the company says the
government might do all sorts of things for political reasons that don't
make business sense.

For example: Telling the company what kinds of cars to make and where to
make them. Or forcing the company to cut the pay of key executives,
which could cause them to leave the company.

3. GM has no confidence in its own financial reports.
The company says that "our disclosure controls and procedures and our
internal control over financial reporting are currently not effective."

In other words, GM isn't confident in its ability to understand its own
financial condition.

That could "adversely affect our financial condition and ability to
carry out our business plan," the company says.


--
The credit belongs to the man who is actually in the arena; whose face
is marred by dust and sweat and blood; who strives valiantly; who errs
and comes short again and again; who knows the great enthusiasms, the
great devotions and spends himself in a worthy cause. Who at the best,
knows the triumph of high achievement; and who, at the worst, if he
fails, at least fails while daring greatly.
T.R. April 10, 1899