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Wednesday, July 01, 2009

GM's Press Release: $1 Handle is Too High

General Motors released an interesting press release today. While most companies encourage institutional investors to buy their stock, GM today actually asked investors to sell their stock, which is currently trading under the the pink sheets symbol GMGMQ. GM is currently in Chapter 11, and it is extremely unlikely that there will be any recompense for equity holders. The press release is accessible here and is displayed below:
GM management has noticed the continuing high trading volume in GM's common stock at prices in excess of $1. GM management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios. Stockholders of a company in Chapter 11 generally receive value only if all claims of the company's secured and unsecured creditors are fully satisfied. In this case, GM management strongly believes all such claims will not be fully satisfied, leading to its conclusion that GM common stock will have no value.
If it is highly unlikely that the company will have any value after bankruptcy proceedings, why are GM shares shares trading as high as 90 cents? The shares will soon be worth $0.00, but at the moment there are short sellers who profited as the stock fell and are covering their positions by buying shares. This theory makes sense, but still, $1 a share and over a half billion dollar market cap is too high for a company worth nothing.

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