On April 21, investors who hold bonds in the old General Motors Corp. (now known as Motors Liquidation Co.) will get stock and warrants for shares in the new General Motors Co. Analysts think that it’s likely that this move will reduce the stock price. From Old GM, bondholders will receive 150 million shares in GM as well as warrants to purchase 272.8 million in additional shares.
A memo sent by Wilmington Trust Inc. revealed that a trust holding the shares will directly distribute them to bondholders' brokerage accounts on April 21 or thereafter.
The creditors’ committee had hired money-management firm Wilmington Trust Inc. David Whiston, an analyst with Chicago-based Morningstar Inc., said that several of these bondholders are retail investors who could sell shares and for a short time, this may cause GM's stock price to drop.
He said that probably, investors have considered the dilution in the pricing and so GM's long-term value is likely to remain unchanged. He hasn’t made any changes to his share valuation of $48 that depends on the release of shares to bondholders.
Whiston believes that there’s bound to be “more selling than holding.” He explained that any type of sell-off in GM represents an opportunity to buy. He also pointed out that in the long-term, GM is in a good position. In the new GM, bondholders were promised stock and warrants to offset a portion of the loss incurred during the bankruptcy of the predecessor company.