General Motors (GM) Returns to Market (Don’t Get Lost in the Pink Sheets!)

General Motors (GM) returns to the market MTLQQ – “Motors Liquidation Company” – is the somewhat cumbersome ticker symbol for the entity that was set up to liquidate General Motors’ assets in bankruptcy. It is in no way shape or form connected to the “new GM” that will begin trading later this year. According to Reuters, this new GM will be dually listed on the New York Stock Exchange as well as the Toronto Stock Exchange between late October and Thanksgiving of this year.

The preliminary GM initial public offering (IPO) filings have taken place. This is expected to be a relatively large offering with some estimates above the $20 billion mark (although this is still unknown). The company will also reclaim the old “GM” symbol (naturally).

Understand that the IPO of this new entity is almost like bringing a new company public with only half a year of earnings data to consider. Since restructuring was complete, GM has released just two quarters of earnings data. Remember, this company was on a trajectory for complete failure before being saved by the U.S. government/taxpayers and others. There are arguments on both sides of this offering. Some are projecting success, while others think it couldn’t be a worse time to bring this company to market.

It is also hard to ignore the political agenda behind this offering. According to the Detroit News, the U.S. Treasury owns about 60% of the reborn car maker. The Canadian and Ontario governments jointly hold a stake of roughly 12% and the remaining 28% or so is split between the United Auto Workers’ healthcare trust fund (17.5%) and unsecured creditors (bondholders).

With the American and Canadian governments holding almost three quarters of the new entity and having made that investment with taxpayer dollars, I think it’s safe to assume that both would really like to see that investment returned for many reasons. Election time is probably one of those reason; the major deficit in the U.S. is probably another.

Remember, depending on where the IPO prices and where the stock subsequently trades, the current owners of the new entity can lose money. It’s not a guaranteed win for them by any stretch and the U.S. treasury has $50 billion dollars in the GM game to date; that’s a large amount of coin.

What about those thousands of investors who still own MTLQQ?

I had a good friend from childhood call me out of the blue the other day and ask me what he should do with his “GM” shares. At first I thought … “Wow, he must be plugged in! GM just filed and he has shares already….” But no, he was referring to MTLQQ and is the not-so-proud owner of a very large number of shares. When I informed him that he will not have rights to the new company, he seemed surprised, and I thought it would be a good topic to offer to all of you.

MTLQQ has been quite volatile in the past couple of months and saw another bump in price over the last week from a low of $0.32 to a high of $0.69. This is most likely due to pure trading activity and unrelated to any real data. Daily volume, which has typically been between one and two million shares, surged over the past week to more than twelve million shares last Tuesday.

Bankrupt liquidation entities like MTLQQ can continue to exist for some time. Just look at LEHMQ still trading for 6.5 cents with an average daily volume of 1.3 million. Usually at the end of the day, however, these dwindle down to nothing and eventually may cease to trade altogether once there is no use for them anymore.

If you are an owner of MTLQQ or have thought about investing in it, please do some extensive homework and be sure you understand the high risk associated with it. I noticed dozens of penny stock message boards touting MTLQQ as a “mover” and also referencing the “New GM.” This can be misleading, as what the new GM earns has NO bearing for MTLQQ shareholders.

MTLQQ only exists to liquidate remaining assets, which, by the way (as I understand it) have been transferred to the new GM Corporation as of July 10, 2010. By owning shares, you are NOT entitled to shares, earnings, or equity in the new company that will be coming to market this fall.

Pink-sheet stocks are short-able and short squeezes can exacerbate moves to the upside. Again, this is just a hypothesis as to the stock’s recent wild ride. Use caution and know the rules and unique characteristics for these sorts of securities and the over-the-counter (OTC) markets on which they trade.

Photo Credit: Mike Licht

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