GM Overvalued at $1 Billion Market Cap

* Full disclosure: I own the May 2009 $1.00 puts

GM’s current share price gives it just over a $1 billion market value. Under both the GM proposal made earlier this week and the counterproposal put forth by GM bondholder yesterday, existing GM stockholders would be left with just 1% of the equity of the new GM. These proposals are intended help GM avoid filing for Chapter 11.

Given the above scenario it would appear that the best GM common holders can hope for is to retain a 1% stake in the company (the alternative being that they wind up with nothing in the event of a Chapter 11 filing). Therefore, the $1 billion market value for the outstanding common appears to imply that the post-restructured GM market cap will be worth roughly $100 billion (implying roughly $10 billion of net income). This simply is not feasible with a GM that will be dramatically smaller in terms of U.S. and global market share.