Looking Deeper at the GM Relisting on the NYSE

General Motors has returned to the New York Stock Exchange and is currently trading at $35, which is $2 above the price set by the company at the opening.

The IPO could wind up as the largest in history. When the U.S. government and other owners sell their shares, they'll raise $18.2 billion. GM will raise another $5 billion by selling 100 million preferred shares at $50 each.

Together, the sale of common and preferred stock will bring the deal's value to a record $23.2 billion.

The stock offering is the latest in a series of head-spinning developments over the past two years for an American corporate icon.

In September 2008, to mark its 100th birthday, the automaker celebrated in the grand three-story atrium on the ground floor of its Detroit headquarters.

Two months later, then-CEO Rick Wagoner found himself in front of members of Congress, begging for money to keep GM alive. Four months after that, he was ousted by President Barack Obama.

By June 2009, GM had filed for bankruptcy. It emerged relieved of most of its debt but mostly owned by the government and saddled with a damaging nickname: "Government Motors." The value of its old stock was wiped out, along with $27 billion in bond value.

Now GM will become a publicly traded company again and revive the stock symbol "GM." Dan Akerson, GM's fourth CEO in two years, will ring the opening bell Thursday on the New York Stock Exchange, to celebrate the company's rebirth.

Obama on Wednesday said GM's IPO marks a major milestone not only in the turnaround of the company, but of the U.S. auto industry as a whole.

I'm not nearly so bullish on the GM stock offering or even the company's viability. The federal government still maintains a significant stake in the company and it has continued to use TARP funds to operate - it has used TARP funds to repay still other government loans - all while claiming that it has improved its balance sheet. The balance sheet itself has been questioned because of continuing accounting irregularities.

Taxpayers will not get all the money back - and while that ultimately depends on the share price when the government's stake is ultimately sold, taxpayers took a hit with the offering since the GM stock price would need to be four times higher to make taxpayers whole. Indeed, the government's stake in the company is only dropping to 43% from 61% with this offering:

This stock offering will only reduce the government's stake in GM from 61 percent to 43 percent. It will take more stock offerings, staggered over the next few years, before the U.S. government is out of the car business.

For shareholders, that means GM may not always put investors first. Political priorities may trump their demands. Some worry GM will spend too much time and use too many resources working on small cars or electric cars and not enough on profitable vehicle lines like trucks and SUVs.

The stock offering "is entirely cosmetic," says Logan Robinson, a law professor at the University of Detroit Mercy who has worked as legal counsel at Chrysler and automotive supplier Delphi. "The government is absolutely going to call the shots, even if they are below 50 percent."

This is going to be the part of a long unwinding process to untangle the government from GM's ownership. At the same time, the government has extended GM some unusual benefits - giving it tax breaks on forward loss-carryovers. That break could mean up to $45 billion in taxes that are not paid by the company.

The tax benefit stems from so-called tax-loss carry-forwards and other provisions, which allow companies to use losses in prior years and costs related to pensions and other expenses to shield profits from U.S. taxes for up to 20 years. In GM's case, the losses stem from years prior to when GM entered bankruptcy.

Usually, companies that undergo a significant change in ownership risk having major restrictions put on their tax benefits. The U.S. bailout of GM, in which the Treasury took a 61% stake in the company, ordinarily would have resulted in GM having such limits put on its tax benefits, according to tax experts.

But the federal government, in a little-noticed ruling last year, decided that companies that received U.S. bailout money under the Troubled Asset Relief Program won't fall under that rule.

Think of that as yet another bailout of the company, and one that its chief competitors - like Honda, Toyota, or Ford, do not have. Chrysler, which accepted TARP funds, would likewise be able to take advantage of the tax break.

It would appear that this particular rule was set forth in Notice 2010-2, 2010-2 IRB 251, 12/11/2009, dealing with IRC Sec(s). 382.