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Published: November 5, 2010
General Motors in an initial public offering (IPO) this
month will price its shares at a level that could regenerate
investor interest, and even throw off generous returns over
time.
At least that's the hope of the U.S. government, which is likely
to see its taxpayer-owned stake fall to less than the
symbolically important 50% level when it sells approximately $7
billion of its shares in the IPO.
GM, 61% owned by the U.S. Treasury Department, will offer 365
million shares at $26 to $29 each, people familiar with the
matter told The Wall Street Journal. The automaker also
will offer $2 billion to $3 billion of preferred shares that
later will become common stock, the people said.
Projections by GM say the company could have a stock-market
value of $50 billion at the start of trading - about the same as
Ford Motor Co (NYSE: F), which last week reported net
profits of $1.69 billion for the third quarter.
GM will issue its stock to the public in an effort to pay back
the $49.5 billion of taxpayer funds it received last year. The
IPO would raise about $10.6 billion.
The Treasury intends to sell
its remaining shares at higher prices down the road, settling
for less than the $12 billion to $16 billion Detroit-based GM
and its investment banks had projected earlier. The actual price
of the stock to be sold in the IPO would be set about Nov. 17,
and the sale would take place the following day.
But for the U.S. government to break even by selling of the rest
of its stake, the share price would need to rise more than 60%
from its initial level, to about $50.
"This makes sense," George Magliano, a senior economist for
IHS Automotive (NYSE: IHS) who is based in New York, told
Bloomberg News in an interview yesterday (Tuesday). "They
need to protect the price of the offering. The IPO was never
intended to buy out all of the government and union stakes in
one fell swoop. It's got to be done over time, and you need to
get the right price."
The plan calls for the Treasury to offload $7 billion of its
shares, slicing its 61% stake to about 35% - lower than many
observers expected. The United Auto Workers trust, which pays
for retiree health care, would sell $2 billion of its shares,
while Canada and Ontario would sell around $1 billion of their
shares, The Journal reported.
The plan also includes a stock split that will triple the number
of available GM common shares to 1.5 billion. Outstanding
warrants will bring total shares available to roughly 1.8
billion.
GM Chief Executive Officer Dan Akerson, a former Carlyle Group
managing director, said he intends to reenergize the company by
improving quality and streamlining lines of communication at the
world's second-largest automaker. Akerson took over for Ed
Whitacre as CEO in September and will succeed him as chairman at
the end of the year.
"I don't think any investor group has infinite patience, and I'm
sure that the taxpayers of America would like to see a return on
their investment," Akerson told reporters on Sept. 16. "That's
one of the goals that we have."
GM recorded net income of $1.54 billion for the second-quarter
on Aug. 12 and chalked up a profit of $1.07 billion in the first
three months of the year. Revenue in the second quarter
increased 44% from a year earlier to $33.2 billion
GM returned $2.1 billion to the U.S. Treasury last week,
bringing the total amount it has repaid through loan payments,
interest payments and dividends to $9.5 billion, the Treasury
said.
The offering comes after the Standard & Poor's 500 Index climbed
13% in September and October, the best performance for those two
months since 1998, according to data compiled by Bloomberg.
A total of 21 companies sold shares through IPOs on U.S.
exchanges last month, the most since 22 IPOs in December 2007,
Bloomberg reported.
GM is set to launch a "road show" to pitch the IPO to
prospective investors today (Wednesday), the day after it files
the details of the stock offering with the Securities and
Exchange Commission
"The market is right and they're going to merchandise this
globally," Joe Phillippi, principal of AutoTrends Inc., a
consulting firm in Short Hills, New Jersey told Bloomberg.
"I think they have a good shot of getting this done."
Investment bankers for GM met with sovereign wealth funds and
private investors in the Middle East and Asia last month to
gauge interest in the offering, two people familiar with the
meetings told Bloomberg. As many as five of the funds are
likely to purchase as much as $2 billion of stock in the
offering, one of the people said.
At least one prominent analyst believes the GM IPO offers good
value for small investors as well.
"This GM deal is going to excite a lot of people and maybe even
entice them back to the casino," Jim Cramer wrote in yesterday's
issue of the The Street.
"That's right, I believe the deal is going to be a smashing
success. It is not just pricing that matters, although I believe
the government is going to throw it to the good guys, meaning
the buyers. There's also actually a strong investment case out
of China," Cramer wrote, referring to GM's growing share of the
world' largest auto market.
-- Don Miller
Associate Editor
Money Morning
Note: This article originally appeared on
Money Morning |
