INSIGHTS

On April 19, 2011

GM Distributes Stock as the U.S. Government Rushes to Sell

---

General Motors (GM), originally founded in 1908, has announced plans to distribute shares of the new company “on or about April 21, 2011.” With its global headquarters in Detroit Michigan, GM filed for Chapter 11 bankruptcy protection in June 2009. With financing partially provided by the U.S. government, a new GM was established and listed on major stock exchanges November 18, 2010, resulting in the world’s largest IPO. GM said it will distribute 75 percent of the stock and warrants it owns in new GM.


GM also said recently that it resolved 97 percent of the $294 billion in filed claims. For every $1,000 in approved unsecured claims, old GM will distribute about 3.8 shares of new GM, 3.5 warrants to buy new GM shares at $10 a share, and about 3.5 warrants to buy new GM shares at $18.33 a share. Bondholders are expected to receive additional stock quarterly until the full amount has been distributed.


So, what action should advisors take if their clients own shares of GM? Well, whether or not you choose to liquidate depends on your client’s suitability and appetite for risk. While we cannot speak directly to your individual situation, we can point out that the U.S. government intends on selling a significant share of its stake in GM this summer, according to an April 19, Wall Street Journal article (U.S. Hurries to Sell GM Stake). The article goes on to point out that recent stock shares have been negatively affected by rising fuel prices, which have undermined investor confidence and hindered production as well as recent management turnover. With the U.S. Treasury needing to sell its remaining shares, about 500 million, at $53 apiece, and with GM closing at $29.97 yesterday (4/18/11) and hitting a new low since November, the immediate outlook is not so rosy.

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the disclosures webpage for additional risk information. For additional commentary or financial resources, please visit www.aamlive.com/blog.