If GM goes bankrupt, won’t the value of the common shares go to zero?
It is increasingly likely that GM won’t be able to restructure adequately, and will be forced into bankruptcy. They are making deals with unions and the government, and handing out ownership stakes with (I think) preferred shares. However, there are also millions of common stock shares out there (currently valued around ). Won’t those shares go to {content}.00 if the company enters chapter 11 protection?
Posted January 31st, 2010 in How To Go Bankrupt. Tagged: bankruptcy, chapter 11, common stock, gm, ownership stakes, preferred shares, stock shares, unions.
When most, but not all, companies emerge from chapter 11, they cancel the old shares (so they are worthless) and issue new shares for sale. So do not buy "cheap" shares of companies going belly up. The odds are they will only become "cheaper" (worthless).
January 31st, 2010 at 11:51 pmNo the value may drop but it is not valueless, Selling now unless you need the money now will allow someone to buy it cheaper then cash in when GM emerges from chapter 11.The rich get richer. If you expect GM can continue Buy at the lower prices this is a faith based order.
January 31st, 2010 at 11:51 pmEventually they will be worthless. If and when they file Chapter 11 their shares will probably drop to pennies and trade in the Pink Sheets for a while. From there they will most likely be canceled and therefore worthless. When they reorganize new shares will be issued and common shareholders will have to buy them all over again. This is the likely scenario.
January 31st, 2010 at 11:51 pmYes.
Although, technically, it will not do so immediately.
Most of the time the old stock continues to trade until the company emerges from bankruptcy with new stock. The new stock (generally with a new trading symbol) replaces the old. If the old shareholders are giving anything by the bankruptcy judge, it is usually awarded in the form of shares in the new stock (when it happens it is never 1 for 1…more along the lines of 1000 old shares for 1 new share).
In the case of GM, the common equity (retained earnings) remaining is less than zero after consideration of the major claimants to GM’s assets….so….this means that the odds of old share holders (common) getting anything from a bankruptcy this year are so close to zero that you can go ahead and call it zero.
January 31st, 2010 at 11:51 pm