According to that recent articles titled " Obama AIG fix it " it was mentioned that privatization would start in 2015 or 2016 ; what exactly does privatization mean ? Currently Fannie is a public company under C-ship so commons have no say ; so what would going private mean ? are we bought out and Fannie no longer trades on any stock exchange ? Thanks
"Jim Millstein, the restructuring guru who oversaw the Treasury's former 79.9% stake in AIG (AIG), owns preferred shares of Fannie Mae (FNMA) and Freddie Mac (FMCC) on the view that the two government-sponsored enterprises should be recapitalized with private sector money -- a plan Millstein himself has been promoting."
The important part in the above para is "the two government-sponsored enterprises should be recapitalized with private sector money". To my understanding it means some entity buys them up and takes them private in which case shareholders including common are paid a premium for their shares say 5 - 6 dollars or more above the current pps.
The entity that buys them could also keep them public, in which case the shareholders remain shareholders in the new entity.
If they are not liquidated or wound down which is the other term floating around, it would be victory for common shareholders. If liquidated it would benefit only Senior and Junior preferred shareholders with crumbs if any for common shareholders.
Have you looked at Millstein's proposal? Recapitalize does not mean all shareholders get paid a premium over the current price.
It means that the ownership in the company is reallocated. In this case, preferred shareholders exchange their preferred shares for new common shares in the company. So after the recapitalization there are no preferred shares and no dividends to be paid.
The governemend would exchange its senior preferred stock for common shares. If you look at his presentation, he shows the government gets 85% of the new company, which corresponds to the % of preferred the government owns, i.e. (liquidation preference of gov senior preferreds)/(value of jr preferreds+liquidation preference of gov senior preferreds).
So it seems the common shareholders are wiped out under his plan.
After the conversion the government would sell the common stock off and hopefully get their money back.
This is the Sixty-four thousand dollar question. IF, it is treated like Sallie Mae, commons should be OK, i.e. still have value and exchanged for shares in the "new" pvt company. If not, I just don't know. If anyone can provide creditable insight, Post away!