General Motors Co. Chief Executive Officer Ed Whitacre never misses the chance for a sales pitch.
When GM sought proposals in May to manage its initial public offering, it didn’t want advice only on selling shares. The automaker wanted help selling Cadillacs and Corvettes. Banks were asked to consider using some of the underwriting fees to subsidize the purchase of GM cars by their employees, according to a two-page document obtained by Bloomberg.
Whitacre, 68, is squeezing concessions from banks vying for a role in what may be the second-biggest IPO in U.S. history. JPMorgan Chase & Co. and Morgan Stanley won the lead mandate in June and agreed to fees of 0.75 percent of the sale, a quarter of the usual rate for large stock sales, people with knowledge of the matter said last month.
“That’s hardball,” said Joe Phillippi, principal of AutoTrends, a consulting firm in Short Hills, New Jersey. “After beating them down on fees they want another pound of flesh. It does sound a little unusual.”
Kristin Lemkau, a spokeswoman for JPMorgan, declined to comment. Mark Lake, a Morgan Stanley spokesman, didn’t have an immediate comment. Randy Arickx, a GM spokesman, said he wasn’t familiar with the request in the document and declined to comment.
Banks were asked to discuss “ideas as to how we can use the IPO to reposition GM and its vehicles within the investment community including your firm’s willingness to reinvest any portion of any underwriting fees into the purchase of GM vehicles for your employees and/or company use.”
GM sent the request for proposal before it agreed to fees with its lead banks. GM and the U.S. Treasury, which owns 61 percent of the automaker, want to keep fees for the IPO low because GM still is recovering and needs to conserve cash, according to analysts and professors. President Barack Obama’s administration also was wary of paying Wall Street banks large fees after bailing some of them out with government funds, two people familiar with the situation have said.
GM was to choose the lead bankers, while the Treasury retained veto power over the selection and determined the fees, according to a statement the government issued last month.
JPMorgan had offered to accept payment in equity instead of cash, and that idea was rejected by GM and the Treasury, two people said. If the banks agreed to reinvest fees in buying GM vehicles, their take would be even less, Phillippi said.
Companies don’t usually ask investment banks to buy products or services as part of the relationship, said Roni Michaely, a finance professor at Cornell University’s Johnson Graduate School of Management in Ithaca, New York. With banks doing fewer deals, companies can make more requests, he said.
‘GM Has Leverage’
“Wall Street always had the upper hand and charged extremely high fees,” Michaely said. “Now there are many investment banks who want to do this deal. GM has leverage in this market.”
GM, based in Detroit, also requested in the document that the banks discuss their interest in providing GM with a multi- year revolving credit line.
The automaker asked the banks to submit views on the size of the transaction, a schedule for the IPO and how they would market the stock sale.
GM plans to file a prospectus next month and sell the shares in November if market conditions permit, two people familiar with the situation have said. The company plans to sell 20 percent of Treasury’s stake, which would reduce the government’s ownership to less than 50 percent, said two people familiar with the plan.
The sale will probably raise $10 billion to $15 billion, depending on the company’s performance, the strength of the economy and the health of the IPO market, people familiar with the plan said in June.
Since 1999, four U.S. IPOs have exceeded $5 billion -- Visa Inc.’s $19.7 billion deal in 2008, AT&T Wireless Group’s $10.6 billion offering in 2000, Kraft Foods Inc.’s $8.68 billion deal in 2001 and United Parcel Service Inc.’s $5.47 billion sale in 1999, according to data compiled by Bloomberg.