The positive news on GM has been so rampant that many risks factors to share price have been overlooked. It is tough to get unbiased opinions since most analysts work for the GM underwriters and TV networks receive millions of dollars from GM ad revenue. While GM has much good news to discuss, the very obvious risk factor of share dilution to benefit the UAW has not been mentioned.
Here are the facts regarding GM’s plans for diluting shares in order to make a $2 billion contribution to the UAW benefits fund in GM Investor Relations’ own words:
The $2 billion in GM stock will be newly issued shares. They would be dilutive to the existing shares. We currently expect to complete the contribution to the pension plans in the near-term. The stock contribution is contingent on Department of Labor approval. The number of shares contributed will be determined based on the offering price of our common stock in the common stock offering. Currently, our intention is to contribute common stock to the U.S. hourly and salaried pension plans that will not initially qualify as plan assets due to certain transfer restrictions and for accounting purposes, these shares will be reflected as issued but not outstanding. When the transfer restrictions have been eliminated, our common stock issued to the U.S. hourly and salaried pension plans will qualify as plan assets and will then be considered issued and outstanding.
In addition to this dilution, it is important to be aware of the fact that there will be warrants issued to creditors of Old GM in the near future that will be dilutive to shareholders.
So, if you are a GM investor, were you aware of the new share issuance? There seems to be a lack of transparency with the planned issuance. And, once again, the UAW seems to benefit at the expense of other GM stakeholders. Most specifically, it is unfair to consider diluting common shares while the Old GM bondholders have not even received the equity they were promised in the bankruptcy proceeding. This equity is still held in a trust at Motors Liquidation Company (Old GM). There is also a very big question of how many shares will be issued, and if there will be shares offered in addition to the $2 billion worth being contributed to the UAW. Perhaps there will be more clarity in the near future, maybe at the next earnings conference call. Particularly if there are analysts that do not work for investment banks that are underwriting any future offerings.