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GM's value higher than Ford's

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GM's value higher than Ford's



General Motors is worth more than Ford.

Say what?

Isn't Ford the hot automaker on a roll, gaining sales, posting profits, riding the goodwill of a nation for avoiding federal life support and sporting a stock price that's tripled in the past year?

And isn't GM the much-derided Government Motors, 61% owned by Uncle Sam, shrunken from eight to four brands in a bankruptcy that wiped out the Old GM shareholders, and still losing money as of its latest financial report a week ago?

True on both counts, but strange as it may sound, GM is worth more than Ford.

Says who?

Says the trading price of Old GM bonds, now called Motors Liquidation bonds, which are trading for three times what they were worth before GM filed for Chapter 11 bankruptcy.

Huh? Why would that be?

Ah, now comes the tricky part, based on funky math that I won't attempt to explain here, except to say it involves partial differential equations and the Black-Scholes formula, which I believe was developed by an alien civilization.

Seriously, here's what's happened at GM, as explained to me by J.P. Morgan credit reports and some big brains from the worlds of private equity and President Barack Obama's auto task force.

The task force pushed GM into bankruptcy last June, wiping out common stockholders and squeezing the holders of $27 billion in GM bond debt into accepting a 10% share of the nebulous value that a future, post-bankruptcy GM might achieve. Bondholders also got warrants to buy more stock in a New GM if its future value exceeds $15 billion, and again if it exceeds $30 billion.

That old bond debt, along with old lawsuits, contracts and other trash, was dumped into Old GM, or Motors Liquidation.

The GM bonds no longer function as traditional interest-earning bonds, but as bets on the future value of an initial public offering of stock in the New GM.

Since GM emerged from bankruptcy, confidence in its survival and possible rebound has grown. Bonds that were trading for a paltry 12 cents on the dollar a year ago rose to around 20 cents in November, and last week traded at about 34 cents.

That trading reflects estimates that GM's total equity value may be somewhere in the range of $50 billion to $66 billion based on its current cash and debt and projections of future profits. By comparison, the total market value of Ford stock was $45.4 billion, based on Friday's closing price of $13.43 a share.

Plenty of ifs

So, because GM has more cash than Ford (Thanks, taxpayers!) and less debt than Ford because of bankruptcy, GM is worth more than Ford? Yes. Well, maybe:

• If GM can post operating profits of $8 billion this year, as Ford is expected to do.

• If GM can deliver a couple of clean quarters of coherent financial reports, without special charges or bankruptcy-related legal and retiree costs, to build investor confidence before an IPO.

• If Wall Street stays enthusiastic about stocks and IPOs.

• And if the overhang of Uncle Sam's desire to sell its 61% ownership stake doesn't unduly depress GM's future stock price.

Those are a lot of ifs, of course. So taxpayers, who have pumped about $150 into GM for every man, woman and child in the USA, should not be spending their refund checks for the rescue just yet.



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