Wishful Thinking? Are Old-GM (GMGMQ) Shares Worth More Than Google (GOOG)?

June 9, 2009 10:38 AM EDT
Trading in General Motors (OTC: GMGMQ) (NYSE: GM) shares continue to defy logic. The stock is up five straight session, including today's 30% upside move to $1.60. The post-bankruptcy low was $0.27.

The action in the stock doesn't simply look like clueless retail investors thinking that if they buy GM's bankrupt stock they are buying the new-streamlined GM. It looks like big money buyers are stepping up.

What do they know?

Originally it was discussed that old-GM shareholders could get up to 1% of the new company, although this is now in question.

For arguments sake, let's say that these old-GM shareholders do get 1% of the new company. With 610 million shares outstanding and a value of $1.60, this gets you near $1 billion. This is valuing the new-GM at over $100 billion to start. This is not entirely out of the question, as there are plenty of companies that have market caps over $100 billion - Exxon Mobil Corp. (NYSE: XOM) $360B, Microsoft (Nasdaq: MSFT) $200B, Procter & Gamble (NYSE: PG) $150B, AT&T (NYSE: T) $145B, GE (NYSE: GE) $143B, Google (Nasdaq: GOOG) $135B, Coke (NYSE: KO) $114B, to name a few. But with no certainty old-GM shareholders will get 1% of the new-GM it seems crazy that they are valuing it here. In addition, if bondholders had to take a huge haircut, but common holders get rewarded, how is that going to play out?

Maybe we aren't getting something here. We've been calling around on this but not getting any good answers. If someone knows something different let us know or comment below.

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