2009-05-13 09:56:40
GM Narrowly Avoids Penny Stock Status (For Now)
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General Motors (GM) briefly traded at the $1 mark earlier today before recovering and trading higher.
This was yet another sad event for General Motors, a company that used to be one of the most respected and revered in the world.
Now, it seems as though it is just a matter of time before GM reaches penny stock status, something that would have seemed unthinkable just a few years ago.
According to the Center for Research in Security Prices at the University of Chicago, the last time that GM closed below $1 a share was April 19th, 1933. This took place during the heart of the Great Depression, and the company subsequently went on to recover (strongly) in the following years.
General Motors has faced a renewed wave of selling pressure as of late due to six top executives of the company electing to dump their remaining shares. This has made it increasingly apparent to those remaining longs in the company who were filled with false hope that GM's days (at least in its current form) are quickly coming to an end.
The bottom line is that pretty much any possible scenario involving GM will see the common shareholders of the company being effectively wiped out.
GM has until the end of May to complete a MASSIVE restructuring that would see $27 billion dollars worth of bonds in the company converted to equity. If this takes place, then existing common shareholders in the company would be massively diluted. Common shareholders would end up holding 1 share of GM for every 100 that they currently own under this scenario.
If GM can't accomplish this, then they would almost certainly be escorted into bankruptcy by the federal government. It is hard to imagine that common shareholders would be left with much of anything if the company enters bankruptcy.
There are some who are still hopeful that the company will manage to avoid bankruptcy or a massive restructuring - I'm not sure what they are thinking, to be honest.
GM successfully fended off reaching penny stock status today, but it seems as though it is just a matter of time before GM trades for less than $1..
Filed under: General Market News
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