Another day, another story detailing the political nightmare that is the GM IPO. The WSJ [sub] reports that
The U.S. Treasury is concerned about how many overseas investors it should allow to buy big stakes in General Motors Co. through the car maker’s initial public offering this fall, according to people familiar with the matter.
The caution—aimed at minimizing any political fallout from the massive stock sale—could involve limiting or being selective about which non-U.S. investors such as sovereign-wealth funds would be invited to be “cornerstone” investors in the IPO
Expect Treasury to publicize any limitations on foreign investment in GM’s IPO sometime “within the next couple of weeks.” And no matter how the bureaucrats rule, it won’t be great for taxholders. After all, foreign investors (particularly in China) have the motivation and means to invest heavily in GM, which would help boost the IPO price. The downside, of course, is that the taxpayers’ $50b investment wouldn’t have kept the company American-owned. If keeping ownership in the US is the priority, it’s fair to expect a considerably lower IPO valuation. Heads they win, tails we lose. Ain’t the intersection of politics and business grand?
And the government interference with free market capitalism continues…
I was looking forward to a ChiCom-owned GM. The phrase “sweet justice” comes to mind.
Didn’t realize there was interest in buying GM, domestic or otherwise, unless you were a bank that got bailed out and were being leaned on by the gov’t to return the favor.
Italian ownership is good. Chinese is bad. I kind of like that.
Although not entirely free, it’s about time us Italians are recognized for all the contributions to the USA by getting an auto company.
Thank You America!
Restricting foeign participation has nothing to do with sentiment like “keep GM American”. Rather it is about making sure GM ends up in the right hands.
Here is an example. Remember what happened to state assets in the East Bloc and USSR after the Iron Curtain fell? They were transferred by the Communists, in exchange for token compensation, into the hands of well-connected people who quickly became billionaires. The powers that be simply wrenched the property away from the citizenry, and gave it to whomever they wished.
A government taking something that belongs to the people and giving it away is one thing. This is different. We, “the citizenry”, don’t want to be the owners of GM. We want our money back. If we end up getting more back because foreign investors drive up the stock price, so be it.
The problem is that the government’s preferred investors will be American banks. We bailed them out too, so the tax dollars we gave GM will be repaid in our tax dollars. Again. If the government wants to prevent a controlling stake in GM to fall into the “wrong hands”, just limit the amount an investor can hold regardless of where they’re from, but don’t mandate that the shareholders have to be American.
And here quietly, more billions are wasted on GM. GM is not of any strategic interest – it is not a high tech weaponry manufacturer. Therefore, it should be sold to whoever on the planet is willing to give the US taxpayer the most for it.
If this reduces the sale price by roughly 3 billion, then that makes for a bill of approximately $10 for every American.
” … it is not a high tech weaponry manufacturer …”
Yeah, because weapons are the only thing which matters to a modern country and its people!
I can see the point, but generally you want foreign investment because it’s a net transfer of dollars into a nation’s economy, rather than just a shuffling around of what monies currently exist. If this is PR, it’s sloppy and shallow.
What should have been considered is job, domestic sourcing and domestic production guarantees. That would have been perhaps more useful.
On what authority would the government block foreign ownership? Generally that’s only been done in industries which involve defense related or military use technology items.
However, I go with the post above that asks – exactly which foreigner do they think is dumb enough to invest in GM?
There is a lot of precedence in the US to block foreign ownership of non-defense related US companies. You probably remember the Dubai Ports World controversy where a law was passed to block the sale of some US ports to a UAE company.
Ultimately all large foreign investments have to be reviewed by the Committee on Foreign Investment in the United States (CFIUS). They have a lot of say on whether to block a sale of what they consider to be ‘critical infrastructure’. Its a very loose term that differentiates usually along racial lines, Royal Dutch Shell buying an important US oil and natural gas pipeline isn’t crucial. If ABP ( British port company) tried to buy those same US ports there wouldn’t have been much of a problem. The goal is to keep people the US doesn’t like, such as the Arabs and Asians, away from heavily influencing the US economy and infrastructure.
In the case of GM, the Treasury will completely bypass the CFIUS. For a Chinese automotive maker like SAIC a massive investment in GM makes sense. They are cash-rich and buying GM will give them branding and their foot in the door in many global markets. They can insure Chinese industry will be able to sell their automobile around the world. Most of the world’s people will not buy a BYD, Chery or a Wuling, to establish the infrastructure to sell those cars will be much more expensive then buying GM stock even though it may be overpriced.
However, let’s keep in mind that the US government bailing out and controlling GM is completely with protectionist intentions. It is a form of economic nationalism, or mercantilism, if you will. The US is not into GM because they want to make a buck. Selling GM to a foreign entity is counter to the government’s original intentions. Using tax-payer money to bailout GM just to hand it over to the Chinese, which Americans generally hate, is political-suicide.
Its a quagmire, yes, but that comes with the territory of nationalizing a domestic automaker.
So, let me get this straight: We send our Treasury Secretary and Secretary of State over to China to beg and plead for them to continue to buy lots of US Treasury Bills, Notes, and Bonds, but we don’t want them to buy GM stock. Therefore owning $800 bil to $1 trillion of US debt is good but buying $10 billion of GM stock is inherently evil. I think I will go lie down until my head stops hurting.
They are talking about invited cornerstone investors – not all investors. I would wait to be offended until its actually clear what if anything they actually plan to do. This seems more like idea floating, making conservatives commit to publicly accepting the possibility of foreign ownership so they will not be able to attack the IPO should that occur.
The treasury can’t block sales of shares, what it can do though is control the number of its shares it wants to sale and to whom (and since it owns 65% it can effectively choose one majority owner over another, nothing illegal about that.) I think what they want (and despite the well deserved hate of GM), this isn’t the same company and they could end up turning into a monster (I mean they are well positioned financially) and perhaps it would be best if US mutual funds, 401ks, etc. ended up benefiting from that, those are the large buyers (banks can’t invest in stock (atleast the retail portion)).
If GM’s IPO is limited to certain investors and those shares are ‘tagged’ as to how they can be resold later on, the govt could be effectively controlling GM well past the time it becomes supposedly independent.