GM is going public next month in New York and Toronto. Government spinoffs usually do well (think CN and Petro-Canada). This one will do especially well. The U.S. Treasury Dept. has about $40 billion invested in GM equity, which on the balance sheet is worth $24 billion. The government’s 60% stake is therefore worth about $15 billion.
There is no way the taxpayer will see a return on this investment in the short or even medium term. Even if GM trades at twice book value, the government’s return is negative at first and for a while, and it won’t trade at twice book.
So what’s the government to do? Price it cheaply and flog it to as many retail investors (a.k.a. voters) as possible. After all, if they make money, they won’t mind if the government loses.
GM has been encouraging employees, retirees and dealers to buy stock. And the stock will apparently be split to price each share in the $20-$25 range, according to the Wall Street Journal. They’re aiming squarely at the little guy and they won’t let him lose.
Read this for a little more detail.