AFSCME 3357-HOF'S BLOG

IT'S OFFICIAL: THE GENERAL MOTORS TAKEOVER RUMORS HAVE BEGUN!

Late yesterday, it was announced that the UAW has refused to reopen the collective bargaining agreement to give GM relief on healthcare expense. No doubt central to union president Ron Gettelfinger's decision was the fact that the rank & file are still royally pissed that General Motors handed Fiat $2 Billion just a couple months ago and basically got nothing in return. GM stock went down again

So here is where GM sits right now. Their 2005 new products were met with a collective yawn by buyers. We're sitting in an environment of generally rising interest rates, and GM's credit rating is sinking to junk status. General Motor's stock has plunged 41% in the past year.

The financial bigwigs see no way out for GM, and this is true even though General Motors doesn't have a long string of consecutive losses. In most recent periods GM has made a little money, but not much.

In the Bloomberg article cited below, it is rumored that some leveraged buyout people have been talking with Daimler-Chrysler execs about buying General Motors, cutting it up, and selling the parts.

As it stands today, General Motors has a Market Cap of $14.9 Billion. The market cap is the total value of all the shares outstanding. In other words, it's what you could theoretically buy the entire company for.

General Motor's revenue for the last reported 12 months was $193 Billion. When you put these last two statistics together, you find that in theory, you could buy the whole company for about the cost of one month's revenue.

The book value of a corporation = assets - liabilities. The book value per share according to the most recently available information from Reuters was about $49 per share - just about twice the share price. In theory, GM is worth more split up than it is worth whole.

Although the company is cash poor for its size. At $36 billion, it's cash hoard is twice the market cap.

What would keep somebody from sweeping up GM? Its size for one thing. The value of the company's assets is contingent on the company running as a going concern. Unless the company, or it's parts, can be run profitably, the asset value must go down. Some of the assets are questionable to begin with - witness the recent turmoil over accounting reciprocity with Delphi. If experienced professionals can't run General Motors profitably, how cn newcomers?

You put all these things together, and you have the makings of a volatile company. Who knows what's going to happen next. The one thing that I want to stress to my fellow Stay tuned.

Bloomberg.com: Top Worldwide