GM’s "Wiped Out" Shares rise 21% Thursday

Proof insanity knows no limits. GM (GMGMQ) shares are rising despite everyone, including GM saying they are worthless.

AP Reports:

Late Monday, U.S. bankruptcy court judge Robert Gerber gave interim approval for the Detroit-based automaker’s use of a total of $33.3 billion in bankruptcy financing, with $15 billion available for use over the next three weeks. He will rule on final approval of the financing on June 25. Gerber also approved GM’s sale procedures, setting a sale approval hearing for June 30.

“Our agreement with the U.S. Treasury and the governments of Canada and Ontario will create a leaner, quicker more customer and completely product-focused company, one that’s more cost competitive and has a competitive balance sheet,” CEO Fritz Henderson said at a news conference in New York. “This new GM will be built from the strongest parts of our business, including our best brands and products.”
The Detroit automaker said warranty coverage, service and customer support will continue uninterrupted, plants will continue to make cars and trucks, and essential suppliers and GM’s 235,000 employees worldwide will continue to be paid. GMAC Financial Services said in a statement that it will continues to provide automotive financing to GM and Chrysler dealers and customers, and the federal Pension Benefit Guaranty Corp. said workers’ pension plans remain safe.

GM will follow a similar course taken by smaller rival Chrysler LLC, which filed for Chapter 11 protection April 30. A judge on Sunday gave Chrysler approval to sell most of its assets to Italy’s Fiat, moving the U.S. automaker closer to a quick exit from court protection, possibly this week.

The plan is for the federal government to take a 60 percent ownership stake in the new GM. The Canadian government would take 12.5 percent, with the United Auto Workers getting a 17.5 percent share and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

In case you are still not convinced, GM on its own website says:

Will I receive payments on any shares or cancelled shares?

We think it is unlikely that you will receive payment. We cannot predict what the ultimate value of GM’s common stock may be or whether stockholders should expect any financial recovery in the Chapter 11 proceedings. When a company files for Chapter 11, its primary obligation shifts to maximizing the value of the company for its creditors. Stockholders of a company in Chapter 11 generally recover value only if the claims of the secured and unsecured creditors are fully satisfied. Thus, in most Chapter 11 cases, stockholders receive little or no recovery of value from their investment.

Yet despite all that, GM shares have rallied from $.27 cents each the moment of the filing to $.71 cents a share on Thursday. For those who do not want to do the math, that is 162%. Yup….a 162% gain for shares the company just told you will not be worth anything soon.

Why not?  The company said it has $172.81 billion in debt and $82.29 billion in assets when it filed for Chapter 11 protection. In a Chapter 11, the ONLY way shareholders collect is if there is anything left AFTER debtholders are satisfied. With federal government getting 60% ownership, the Canadian government 12.5%, the United Auto Workers 17.5% share and unsecured bondholders receiving 10%, there is NOTHING left for current shareholders…nothing…

If you own them and think they may have value someday, they will not. Take what you can get and move on…

Disclosure (“none” means no position):None