GM completes biggest US IPO ever

General Motors Co pulled off the biggest initial public offering in US history, raising $20.1 billion after pricing shares at the top of the proposed range in response to huge investor demand.

By (Reuters)

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Published: Thu 18 Nov 2010, 9:22 AM

Last updated: Mon 6 Apr 2015, 9:29 AM

GM sold 478 million common shares at $33 each, raising $15.77 billion, as well as $4.35 billion in preferred shares, more than the initially planned $4 billion.

Including an option that would allow underwriters to sell more shares, expected to be exercised in coming days, GM looks set to raise $23.1 billion, making it the biggest initial public offering ever.

The strong response to the stock sale reflects a groundswell of investor confidence that GM is moving beyond its unpopular, taxpayer-funded bankruptcy in June 2009 with sharply lower costs and higher profit potential.

The US government’s stake in GM will drop to about 33 percent from 61 percent if all available shares are sold.

The success of the IPO is good news for the Obama administration, which faced criticism for bailing out GM, and will help the automaker shed its “Government Motors” label.

“General Motors’ IPO marks a major milestone in the turnaround of not just an iconic company, but the entire American auto industry,” President Barack Obama said in a statement.

The stock will begin trading on Thursday on the New York and Toronto exchanges, and underwriters expect the shares to gain 10 to 20 percent on the first day.

Auto industry executives and analysts said the reversal in Wall Street sentiment toward GM pointed to renewed confidence in an industry that was hit hard by the credit crisis of 2008.

That is a positive sign for a range of auto-related companies, including Chrysler, that are looking to tap the credit and equity markets in coming months, analysts said.

“You’re not in GM for a three-month investment,” Tim Leuliette, a director at auto parts maker Visteon Corp, said at the Reuters Autos Summit.

“You’re into GM because a critical element, a critical building block of the US economy, has significantly repositioned itself to be competitive.”

United Auto Workers President Bob King, whose union stands to reap $3 billion from the IPO for an affiliated trust fund for retiree health care, said GM’s factory workers had an interest in seeing its shares perform well.

“The higher that stock price is, the more money General Motors has got to invest in products, new facilities,” King told Reuters.

From blue-chip to bailout and back

The stock sale represents a big step toward taxpayers recouping the US government’s $50 billion rescue of the 102-year-old company, which had fallen from blue-chip status to bailout basket case in recent years.

GM earned $5 billion in the first nine months of 2010 and is on track for its first full-year profit since 2004. Earnings will accelerate if US auto sales continue to creep back up toward the 15-million or 16-million vehicle-per-year sales rates the US industry last saw in 2007, analysts say.

Sales plunged to 10.4 million vehicles in 2009 and have staged a slow recovery to near 11.5 million this year.

“The automotive markets are not yet at their best, far from that, but they’re certainly recovering from last year,” said Xavier Mosquet, senior partner at the Boston Consulting Group and an adviser to the US government in the GM restructuring.

In a road show for investors spearheaded by GM Chief Executive Dan Akerson and Chief Financial Officer Chris Liddell, the automaker has emphasized both its sharply lower costs and its exposure to key growth markets like China.

One of the open questions was whether GM’s China partner, state-owned SAIC Motor Corp Ltd, was able to move beyond a last-minute regulatory hurdle that threatened its plans to take a 1 percent stake in GM.

Under a tentative deal, SAIC had agreed to invest $500 million to $1 billion in GM pending Chinese government approval, people with knowledge of those discussions said.

As of late on Wednesday, China’s Ministry of Commerce had not approved the SAIC investment, said three people familiar with the matter.

Sources have said that sovereign wealth funds in the Middle East and Asia are among the investors.

“What’s good for general motors...”

At its IPO price, GM will be valued at about $63 billion, based on a diluted share count.

The US Treasury will remain GM’s largest shareholder for now. US officials have said unloading the entire stake is likely to take several years.

The stock price will need to rise by 47 percent to near $49 — about what it costs to fill the gasoline tank of a 2010 Chevy Malibu — for the US government to break even on its follow-on stock sales.

At $49 per share, GM would have a market value of more than $90 billion. In comparison, its closest rival, Ford Motor Co, has a market capitalization of $59 billion after a rally that has sent its stock up 65 percent this year.

A study released on Wednesday by the Center for Automotive Research estimated that the Obama administration’s aid to the auto industry had saved over 1 million jobs by sparing the automaker from liquidation.

US officials and advisers said the GM IPO represented a validation for the Obama administration’s intervention.

“What was that statement that used to float around? What’s good for GM is good for America? Well, I think in this case, what’s good for GM is good for the American taxpayer,” said Adrian Cronje, chief investment officer at Atlanta-based wealth management firm Balentine LLC.

The GM stake held by Canada could fall from 12 percent to just more than 9 percent. The retiree health care trust affiliated with the United Auto Workers union could see its stake drop from almost 20 percent to 13 percent.

With overallotments, GM’s IPO would eclipse the record $22.1 billion raised by Agricultural Bank of China in its IPO in July. The previous top US IPO was Visa Inc’s $19.7 billion stock sale in 2008.

Morgan Stanley, JPMorgan, Bank of America and Citi are listed as lead underwriters on the offering. Barclays Capital, Deutsche Bank, Goldman Sachs, Credit Suisse and Royal Bank of Canada are the other major underwriters.

Lazard and Boston Consulting Group served as advisers to the Treasury. Evercore Partners advised GM.

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