It was a strategy that worked well for both corporate raiders and organized crime.

1. Target a company in a state of financial distress.
2. Inject the capital needed for the company’s temporary survival. In the case of corporate raiders, this came in the form of stock purchases (often through proxies) to gain a majority position in a corporation; with the mob the loans were direct cash infusions.
3. Use leverage of ownership or creditor status to execute a forced sale, or have the business submit to the will of its debt-holders.
4. Further manipulation of markets can allow a shrewd tactician to drive a company’s stock price or value down, thus buying the company for much less than it would otherwise have been worth.

Now that the federal government has its hands on the wheel of General Motors, they are taking steps to steer the company into bankruptcy, as reported by The Washington Post Thursday evening.  Sending the company into bankruptcy would be accompanied by a cash injection from taxpayers amounting to nearly $30 billion in the form of federal loans.

Although the move toward bankruptcy is being sold as a “legal tactic… viewed by some as the best means of reviving” GM, it also has the hallmarks of the same strategy employed in a hostile takeover.  Tomorrow’s drive stock prices down to a level where the US government can buy the entire company, as opposed to the previous plan to nationalize only half of one of the nation’s largest companies.

As the Washington Post article reports:

The government previously indicated that it planned to take at least 50 percent of the restructured company, and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.

Although $1.92 a share may seem low in terms of dollars, a precipitous drop such as can be expected in tomorrow’s market could bring the numbers for a complete government buyout within reach.

Please Secretary Geithner’s personal shopper at Brooks Brothers know that he’ll be shopping for peg-leg accessories and eyepatches from the summer collection.

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