GM may be worth $67 billion. Really.

By Chris Isidore, senior writer


NEW YORK (CNNMoney.com) -- What's GM worth? The answer will help determine if taxpayers are able to make a profit from the automaker's bailout.

Last month General Motors paid the last of its $6.7 billion in loans it received from the government. But to get back the rest of the $50 billion in aid it gave GM to keep it alive, the Treasury Department will have to sell the 61% stake it holds in the automaker.

So GM will need to trade at a market value of at least $67 billion once it starts selling shares to the public in order for taxpayers to make back their money.

At the time of the bailout, that seemed like a pretty tall order, considering that the greatest market value the company's stock ever achieved was $61.3 billion in May of 1999, according to research by the Center for Research in Security Prices at the University of Chicago.

But just 10 months after the company emerged from bankruptcy, that kind of valuation is looking far more realistic.

After the company reported its first profit in nearly three years on Monday, numerous estimates were published by analysts that put the valuation between $64 billion and $90 billion.

"The prospects of repayment look brighter," said Larry Summers, director of the National Economic Council, in remarks Tuesday. "There is a real prospect of [Treasury] recovering most if not all of its investment in General Motors."

Investors who buy and sell the bonds issued by GM before its bankruptcy seem to agree. They are also betting on GM being worth enough to pay off taxpayers.

The holders of those bonds are due to receive stock in GM after its initial public offering. So the value of the bonds is tied directly to the expected stock price following an IPO, which some experts think could take place as soon as the end of this year.

Many of those bonds are trading at roughly 35 cents on the dollar. That translates into an eventual market value of $66 billion for GM, according to Kirk Ludtke, senior vice president of CRT Capital Group, an investment firm that has been tracking the value of GM's debt.

Ludtke reaffirmed his "buy" rating on GM's bonds Tuesday, saying he thinks they'll eventually fetch between 40 cents and 43 cents on the dollar. At that level, the value of GM's stock would be worth about $75 billion to $78 billion. Other analysts are also becoming more bullish.

Eric Selle, credit research analyst with JPMorgan Chase, said in a note to clients Monday that he was raising his estimated value of GM bonds due to GM's "solid first quarter." He now puts the market value of GM shares at about $90 billion.

Still, if GM shares were to fetch even $75 billion on the open market, they would be worth nearly double the current market value of successful rival Ford Motor (F, Fortune 500). At first blush, that seems wildly optimistic.

Ford, which posted a much bigger profit than GM in the first quarter and has been gaining U.S. market share, is worth only $38.9 billion. But experts say it's wrong to assume Ford is more valuable.

"GM should be worth more than Ford," said Rod Lache, equity analyst with Deutsche Bank, who estimates GM should be worth about $64 billion.

GM is in a much better position overseas, particularly in China, the fastest growing market for auto sales. Lache added that GM also has profitable stakes in joint ventures in China.

In addition, GM has almost no debt following its bankruptcy reorganization while Ford has $32 billion in debt. The fear is that Ford will try to swap that debt for equity, diluting the value of its current shares.

GM officials would not comment on the various valuation estimates. In January, chairman and CEO Ed Whitacre told reporters that Treasury would turn a profit on the GM bailout.

Chris Liddell, the company's new chief financial officer, backtracked a bit on that promise in March, cautioning that there are too many variables to predict if the government will get that money back. But Liddell did say Monday that an IPO would "happen in good time when the company is ready." To top of page

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