Reading the fine print impacts GM IPO decision

November 21, 2010
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Mitch Stapley was not at all enamored of the high-profile General Motors’ initial public offering last week, when commenting in advance. GM shares closed at $34.19 Thursday, up from that day’s initial public offering price of $33.

Stapley’s reasoning involved some forthright, but disconcerting, language in GM’s IPO Prospectus: “We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition to carry out our business plan.”

“That sounds like a company that has had four CEOs in the last 18 months (five, if one counts President Obama),” Stapley said. “Given these facts, (the IPO) is a good one to step back from. We’re going to give this one some more time.”

He also painted a vivid picture for his audience of local accountants (see story, Page 1) regarding the impact mandatory entitlement spending will continue to have on the U.S.

“If future taxes are held at the historical average, spending on Medicare, Medicaid and Social Security will consume all federal revenues by 2052. Because entitlement spending is funded on autopilot, no revenue will be left to pay for other government spending, including constitutional functions such as defense.”

He endorsed the recent recommendations of the leaders of a non-partisan federal deficit-reduction panel co-chaired by Erskine Bowles and Alan Simpson. “It is really a good first step — to simplify the tax code and look at some political third rails. It’s beginning the discussion because we know what’s out there” if the deficit isn’t addressed effectively.

Stapley also favors Michigan Gov.-elect Rick Snyder’s proposal to replace the Michigan Business Tax with a 6 percent corporate income tax in order to simplify the state's business tax structure.

He said Michigan’s national ranking in business taxes “isn’t that onerous” but “a disproportionate share falls on manufacturing. It doesn’t represent what we are any more. Michigan is more service oriented. We need to lower and broaden (the tax structure). “(The flatter tax approach) is a recognition of what the state’s economy has evolved into — again, more of a service sector. The days when companies like GM and Ford could carry the (tax-paying) weight is gone. It’s not the same economy.”

More paperwork

Congressional reform of the financial market will have little, if any, affect on small-business lending, except in how a loan is reported. Under the Home Mortgage Disclosure Act, lenders have to gather basic personal information about mortgage borrowers, such as race and gender, and how many loan applications were approved. Lenders then compile that information into an annual report and send it to the federal government so the Fed can track who was and wasn’t getting mortgages, and how much was being lent in a given year.

“What is going to happen under the new act is there is going to be reporting, as well, for small-business loans. And they’ll be gathering information on whether loans are made to women-owned businesses or to minority-owned businesses and gathering some other information so that information can be used to track fair-lending compliance in the area of small-business lending,” said Rodney Martin, chairman of the financial services group at Warner Norcross & Judd.

“But that’s really the only significant provision in Title X and Title XIV, which relate to the mortgage business,” he added.

The reporting measure found in the Wall Street Reform and Consumer Protection Act is expected to go into effect in July when the Consumer Protection Financial Bureau begins operating.


Sequenom in flux?

Harry F. Hixson Jr., chairman and CEO of Sequenom Inc., earlier this month defended the Sequenom Center for Molecular Medicine laboratory in Grand Rapids during a third quarter conference call with analysts.

The company, which purchased the Grand Rapids lab from the Van Andel Institute and Spectrum Health two years ago, sells equipment used in genetic analysis and is trying to establish a beachhead in the field of molecular diagnostics, particularly prenatal tests.

The company attracted local attention by waiving the potential to hire 500 people in Grand Rapids. It ran into trouble this year when the former head of research admitted to the Securities and Exchange Commission that she lied about the effectiveness of a genetic test for Down syndrome during trials. Stockholders sued and the whole affair has cost the company at least $48.8 million.

Now Sequenom is almost done with its legal issues and has returned to the bench to start over on the Down syndrome test with plans to launch it next year. The public company also started over on the lab, taking work on the Down syndrome test to a recently completed certified lab near its San Diego headquarters, close to the research and development team.

When an analyst questioned Hixson about the redundancy of two SCMM labs thousands of miles apart, he replied that the San Diego location is being devoted strictly to the Down syndrome test, with the Grand Rapids lab inside Grand Valley State University’s Cook-DeVos Center for Health Sciences handling everything else in the diagnostics space.

“The other tests that we’re going to bring on will be brought online through the Grand Rapids CLIA lab,” Hixson told the analyst. That would include a screening test now on the market for cystic fibrosis carriers, which the company said is gaining traction with doctors, and genetic tests for macular degeneration, still under development. Sales of a fetal sex determination test have been disappointing and Sequenom is dropping that test. It also cut its sales force during the third quarter, according to the conference call.

Hixson provided no guidance on the jobs creation potential left in Grand Rapids.

The Genie and House Bill 6564

Wind-generated electricity is here to stay, said Arn Boezaart. “The genie is out of the bottle.”

And it’s hovering over Lake Michigan, as is evidenced by Michigan House Bill 6564 introduced Nov. 10.

Boezaart, executive director of the Grand Valley State University Michigan Alternative and Renewable Energy Center in Muskegon, was speaking at a public forum at Aquinas College last week on the future of commercial wind farms offshore in Lake Michigan. The forum was hosted by the West Michigan Environmental Action Council and the Center for Sustainability at Aquinas.

Boezaart and several other panelists talked about common concerns regarding commercial wind turbines and what would need to be done by developers, researchers and local governments before a commercial wind farm could be built in The Big Lake.

In the back of everyone’s mind was the past year of controversy regarding a large wind farm that would have been about four miles offshore from Pentwater, proposed by a Minnesota developer. In Oceana and Mason counties, the idea went over like the proverbial lead balloon, although some people in Muskegon said they would welcome an offshore wind farm there.

The Mason/Oceana proposal was a “poorly conceived project,” said panelist Mike O’Brien, a Douglas resident who represents Bluewater Wind in the Great Lakes region. Bluewater is a New Jersey wind farm developer working on a major project off the coast of Delaware. O’Brien said repeatedly that “correct, thoughtful siting” of the turbines is the key to a successful project.

H.B. 6564 would spell out in detail how Michigan will lease the bottom off its Great Lakes shores to wind farm developers. It would bar any wind farm within three miles of shore, and the adjacent county board would have to give its consent for a wind farm within six miles of shore. Leases for bottomlands would be by public auction, with leaseholders paying 3 percent of gross electricity sales revenues to the state.

State senators Patty Birkholz, R-Saugatuck, and Gerald Van Woerkom, R-Norton Shores, along with Democrat reps from Leland and Bay City, led a bipartisan coalition of shoreline lawmakers who drafted the bill.

Birkholz said that Michigan has an opportunity to be on the cutting edge of wind turbine manufacturing with “this common sense, bipartisan plan to make Michigan the top spot in the nation for offshore wind energy, and put thousands of our workers back on the job.”

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