GM could be owned by the workers
BY IAN PORTER | 14th Apr 2009
The switch in ownership away from normal stock exchange investors – mums and dads, pension funds, trusts and endowments – means control would pass to the company’s strongest combatants of recent years.
The unexpected change in GM’s status, from a manufacturing colossus to what will effectively be a worker’s co-operative, was confirmed over the weekend by new General Motors chief executive Fritz Henderson.
“We have said in our filings that the majority of the company would be owned by VEBA (the UAW’s Voluntary Employee Beneficiary Association) and the bondholders,” Mr Henderson told Automotive News.
“So you would have massive dilution, significant dilution (of existing shareholders).” Estimates last week indicated bondholders and VEBA could end up holding as much as 90 per cent of GM’s shares if they accepted the next offer about to made in a bid to extinguish GM’s debt.
Mr Henderson stopped short of saying the GM board would be controlled in future by the UAW and the bondholders, but he did point out that the president’s task force wanted the board to be reconstituted, if not completely replaced.
“But, at least going into the (autumn), the question is that we need directors who are capable of applying the right governance over General Motors,” he said.
When asked if the government, which has advanced $US16 billion of loans to GM so far, would be picking the new board, Mr Henderson said: “Well, the shareholders ultimately have to vote.” Mr Henderson said the selection of the new board members was being handled by newly-appointed chairman Kent Kresa.
But he admitted that he wasn’t sure for a while if he would be a director.
“I am actually now on the board. I wasn't before.
“It took me a while over the weekend to figure out if I was on the board or not, actually,” he said.
GM owes bondholders around $US27 billion ($A38.8 billion) for the unsecured debentures they hold and has pledged $US20 billion to VEBA to cover all future retiree health costs.
But, while the company owes a total of $US47 billion to its creditors, at the close of last week the share market valued GM shares at $US2.04 and the whole company at $US1.5 billion.
Mr Henderson said the previous plan offered to bondholders involved them receiving value equivalent to $US333 for every $1000 of debt they held. But that $US333 was to be paid in new debt – a promise to pay something later – and new shares.
“Instead of getting $US333 of new debt and some stock, now you're going to get $100 of debt and more stock. Or maybe you get no debt and more stock’” Mr Henderson said.
The admission from Mr Henderson essentially means the company is worthless and that any operations in future will basically be done so GM can make repayments of some kind – any kind – on its remaining debt.
“And if we're not able to negotiate with the various parties out of the bankruptcy in the next 60 days, then we will go into a bankruptcy to get that done,” he said.
The bondholders have already rejected a more generous offer, but Mr Henderson has been told to press ahead by none other than president Barack Obama and his automotive industry task force.
“The viability plan, when you look at the finding, (the Task Force) basically said they appreciated what had been done - actually quite a bit of what had been done is correct.
“What they really said was they wanted things to go deeper and faster.” Mr Henderson said GM had been talking to the bondholders and the UAW last week, but that no progress had been made.
The bondholders are preparing legal action to prevent GM lodging and acting on a bankruptcy plan as a means of quickly shedding its onerous debt load.
The Wall Street Journal reported that the plan would most likely see GM broken up into a “new” company comprising the more profitable parts of the group and an “old” company holding all the unprofitable bits.
The newspaper said bondholders were worried the bankruptcy process would push them to accept hefty losses on their investments.
It said members of an ad hoc committee representing GM bondholders had made their concerns known to the Obama administration's task force.
As an aside, Mr Henderson said the sale of the Hummer business had been delayed by the emergence of some interested parties late in the process.
“I actually wanted to get it done by March 31, but as with most things it takes a little bit more time,” he said.
“What's interesting is one of the things that's taking time is that we've had several parties come to the process late who had interest.
“So we wanted to make sure that we didn't close off the process too soon because we don't think it would be in our best interest to do that.”
Read more:
GM looks to a smaller futureBankruptcy looms as an option for GM
Obama forces Wagoner to quit
GM told to cut deeper