GM: Buyout Better than Bailout

Nov.21.08 | About: General Motors (GM)

By Rob Weigand

There’s been a lot of cyber ink and hot air devoted to the question of whether or not the U.S. Government should get involved in General Motors’ (NYSE:GM) difficulties. Here’s my two cents on the issue: Don’t bail out GM with loans – you’ll never see a nickel of that money again. Instead, the government should execute a hostile takeover of the whole company, hire one or more private equity firms to turn the company around, and bank a profit when GM’s stock can be sold to the public again in a few years.

At today’s price of $3/share, GM has a market cap of a little under $2 billion. The government should not only provide $25-$50 billion of emergency low-cost loans, but should spend another $4 billion and buy up all of GM’s stock at a 100% premium - $6 a share. That’s more than fair to existing shareholders.

There is more private equity talent sitting on the sidelines these days with nothing to do than can be imagined. Invite the best of the best in as equity partners. Ask them to put up a couple of hundred million to ensure they have sufficient skin in the game, and let them share proportionately when GM goes public again a few years from now. Let’s see what Steve Schwarzman and Henry Kravis are really capable of. These characters allegedly like high-adrenaline challenges; well, I’d say that GM qualifies. It’s one of the most broken companies of all time.

If Schwarzman, Kravis, or some other P/E genius can pull off this turnaround, they’ll preserve at least 100,000 jobs directly (although many will be lost), perhaps millions of jobs indirectly, save Detroit and Michigan from a horrible fate, re-invigorate American manufacturing, and make some money for both themselves and the U.S. taxpayer. And I can’t think of any better way for the U.S. Treasury to make sure it gets paid back on the loans it provides to GM than to buy up the whole company and retain majority voting rights while the firm is taken private. If Schwarzman or Kravis can turn GM around they’ll not only get richer, but they’ll forever be remembered alongside American icons like Lee Iaccoca. So they’ll get a “big-ego” payday as well - exactly what these guys are all about.

We need to break free of labels like “socialism” and “nationalization” that are limiting our thinking right now and recruit some of our most highly-talented American entrepreneurs to help us fix the monumental problems our country is currently facing.

Or, if you prefer to hear the case against bailing out GM made with a little humor in video format, check out this “truth hurts” offering from cartoonist Mark Fiore: Why GM Should Not Be Bailed Out.