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Mon November 15, 2010
Background on the GM IPO story
General Motors (GM) will be in the news a lot this week, so if you sat out the GM story up until this point, here's a quick summary to get you caught up.
Today's General Motors is not your father's General Motors. The old GM went bankrupt. The company couldn't pay its bills (they had some big ones).
But instead of letting the whole company collapse, a court stepped in to reorganize the auto giant (under chapter 11 bankruptcy).
The court split the old GM in two.
- The Bad GM- the bad part of GM was spun into a new company - Motors Liquidation Company. This company is trying to raise as much money as it can by selling and auctioning off old GM assets.
- The Good GM- the good part of GM was packaged into a new company called "The General Motors Company."
The "Good GM" needed investors to make a go of it, and two big ones stepped in with their cash; the U.S. government and the Canadian government.
Together these governments own around 72% of the new company. The rest of the company is owned by a health care trust called the Voluntary Employee Beneficiary Association (they were owed money by the old GM, but took stock in the new GM instead), and by Motors Liquidation Company (the bad part of the old GM).
You could think of these entities as private investors. The same way you and I might own an ice cream shop.
The U.S. government is the biggest owner. It now owns around 61% of the company.
The moniker "Government Motors" is an easy one to score political points with, so the politicians who stepped in to invest tax dollars in the "Good GM" are anxious to sell off their part of the company.
And that brings us to this week's news. The new GM is putting up parts of the company for sale in the form of stock. It will sell these stocks to the public in an "initial public offering" or IPO – the same way any privately held company would.
So the new General Motors Company is about to set sail this Thursday as a publicly traded company.
Investors hope the new GM won't meet the same end the old GM did. On it's last day of trading, old GM stock was worth 71 cents a share, according to the New York Times. New GM stock is expected to sell for $26 to $29 per share (maybe more).
Let us know what else confuses you about this story and we'll work to explain it.
'Government Motors' no more?