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Can anyone shed light on the uptick in GM shares?
Old 04-27-2009, 09:03 AM   #1
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Can anyone shed light on the uptick in GM shares?

GM made an announcement of a number of debt to equity exchanges (to the bondholders, government and UAW).
According the CNBC, the GM news release indicates the current common stock holders will own about 1% of the company.
With that level of dilution, I am amazed that the GM common stock is up about 25% right now.
Am I missing something?
I understand the relief that GM is moving towards an out of court restructuring, but even with rose colored glasses I wouldn't be buying right now.

CNBC story: http://www.cnbc.com/id/30432177
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Old 04-27-2009, 09:20 AM   #2
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The uptick represents the markets assessment that GM just may have a viable business. Keep in mind that the stock was trading close to nada. So a 25 percent uptick doesn't mean much.

Looking back at the GM peak price of close to $90, this small uptick doesn't mean much at all.

This volatility can be expected, regardless of the final outcome.
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Old 04-27-2009, 07:44 PM   #3
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Quote:
Originally Posted by Zathras View Post
According the CNBC, the GM news release indicates the current common stock holders will own about 1% of the company.
With that level of dilution, I am amazed that the GM common stock is up about 25% right now.
Am I missing something?
Markets trade on expectations. Even with bad news stocks can go up if people were expecting worse news.

In GM's case, it looks to me like a head fake. There is a pretty close to 0% probability that bondholders accept this proposal. The joke is that it requires 90% bondholder approval, but bondholders have two very good reasons not to play along. The most obvious is that they have a good shot at getting a better deal in bankruptcy. They currently have the same senior unsecured claim as the unions, but the unions are getting much more for smaller concessions. Why would anyone agree to that? Secondly, because bond holders who go along with the exchange are swapping into a more junior position in the capital structure (in to equity) those who don't exchange actually make out better than those who do. That is non-participating bond holders get to keep 100% of their senior unsecured claim in a significantly less leveraged entity while those who exchange get a fraction of their claim paid as a small slice of equity. Again, why would anyone agree to that?

My guess is that everyone knows this exchange is DOA but they're going ahead with it so when GM files the administration and the unions can blame it on the bondholders.
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Old 04-27-2009, 10:47 PM   #4
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Hmmm, seems bad for common stock holders either way.
The restructuring works and your stock is worth 1% what it was the day before the deal goes through.
The restructuring doesn't work, GM goes into chapter 11 and your stock is worth 0%.

I did hear someone suggest it was a surge of day trading/very short term trading betting on more day to day swings. I expect the expectations aspect are also playing a role, as you mentioned. I would add that it is probably in the less informed traders.
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Old 04-28-2009, 12:35 AM   #5
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Can owners of stock receive a physical stock certificate on request? I would buy a share of GM stock and some for gifts if I could get a certificate, it would be a nice souvenir. They won't be available much longer. Heck, maybe it even has a Pontiac logo on it.

What a shame.
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Old 04-28-2009, 09:21 AM   #6
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Yes, although there is typically a fee to have the certificate sent to you.
Some sites such as Oneshare.com - Buy One Share of General Motors Stock specialize in selling single shares.
Looks like one share of GM stock with the transfer fee would cost you $41 (or you could get a pretty mat and frame and pay lots more).
Please note I haven't used this site although I have used a similar site once (bought shares of Disney for our niece and nephew for Christmas when they were 4 and 6).
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