General Motors Co. may sell next week’s initial public offering above the forecast price range and exercise an option to increase the size of the IPO amid signs of brisk demand, two people familiar with the deal said.
The reception six GM executives have received from investors on this week’s roadshow to promote the IPO has been strong enough to sell the shares at the high end of the $26 to $29 offering range or above $30, said the people, who asked not to be identified because the information is private. SAIC Motor Corp., GM’s partner in China, will probably be among the buyers, three people familiar with the plans said.
GM will probably exercise its so-called greenshoe or overallotment option, granting underwriters 54.8 million more shares, the people said. That would help the U.S. Treasury Department recoup more of the public’s $49.5 billion investment in the Detroit-based automaker. Strong demand for the IPO may also help secure higher prices when the U.S. sells the rest of its shares in later offerings.
Noreen Pratscher, a GM spokeswoman, declined to comment.
The offering of 365 million shares, or 24 percent of the automaker’s stock, is already multiple times oversubscribed, one of the people said. Banks arranging the sale will continue to take orders until the roadshow ends next week, to avoid the perception that any potential investors were crowded out, the person said. GM is scheduled to price the IPO on Nov. 17.
The automaker is getting orders from large institutional investors who are likely to be long-term shareholders at about $32 a share, one of the people said. About 15 percent to 20 percent of the offering will be allocated to individuals, the person said.
GM’s stockholders may sell about $2 billion in shares to sovereign wealth funds in the Middle East and Asia in allotments of about $500 million, the person said.
Joe Phillippi, a principal of consulting firm AutoTrends Inc. in Short Hills, New Jersey, said the fact that the IPO was being sold to institutional investors was a good sign for taxpayers because it means GM is finding eager buyers without having to aggressively market the stock to individuals.
“They only stuff the stock into retail when the deal is going bad,” Phillippi said.
Large institutions are likely to hold the stock longer than hedge funds or individuals, meaning that they won’t sell quickly and put downward pressure on the shares, he said.
The offering comes 16 months after GM emerged from a U.S.- backed bankruptcy. The company reported third-quarter net income of $2.16 billion this week, bringing the automaker’s earnings this year to $4.77 billion. That tops the $4.46 billion profit by Toyota City, Japan-based Toyota Motor Corp., according to data compiled by Bloomberg.
The Standard & Poor’s 500 Index has climbed to a two-year high this month amid signs that the U.S. economy won’t slip back into a recession after the longest contraction since the Great Depression.
“They left enough money on the table that money managers think there is some real upside,” Phillippi said. “GM had a good third quarter.”
Without exercising the greenshoe, the Treasury Department’s stake would fall to 43 percent from 61 percent now, according to a regulatory filing with the Securities and Exchange Commission. If the overallotment option is used, the stake would drop to 41 percent, according to the filing.
The United Auto Workers’ retiree health-care trust would reduce its stake to 15.3 percent from 19.9 percent under the base plan, and the Canadian government position would drop to 9.6 percent from 11.7 percent. With the greenshoe, the union trust would fall to 14.6 percent and Canada to 9.3 percent.
SAIC is likely to buy a small number of shares, three people said. The Chinese automaker’s aim is to show support for its U.S. partner, one of the people said. The Treasury Department wants to avoid the impression that a Chinese company is acquiring GM, two of the people said. SAIC will probably buy a stake of 1 percent or less, people have said.
At a price of $29 a share, the overallotment option would raise another $1.15 billion for the Treasury Department, bringing the government’s total from the IPO to $8.8 billion.
The Treasury needs to sell GM’s stock for an average of $43.67 a share -- 51 percent more than the high end of the offering range -- to break even, according to a person familiar with the planning.
Mark Paustenbach, a Treasury spokesman, declined to comment.
Ford’s Market Value
At $29 a share, GM would have a market capitalization of $43.5 billion, based on 1.5 billion shares that will be outstanding after the offering, according to the company’s filing. Dearborn, Michigan-based Ford Motor Co. has a market value of $56.6 billion.
Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. are leading the offering, according to regulatory filings. Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc. and Royal Bank of Canada are among the firms also listed on the prospectus.
TD Ameritrade Holding Corp., the third-largest U.S. retail brokerage by clients, won’t be participating in GM’s IPO, according to an e-mail from Christina Goethe, a spokeswoman from the Omaha, Nebraska-based company.
“We have been informed that we will not receive an allocation of shares,” she said. “We have several relationships with various underwriting firms for various products, and in this case the underwriting firm is not allocating shares for this offering.”
Clients of Fidelity Investments who either execute 36 trades a year, have $100,000 of assets with the firm, or use Fidelity’s “premium services” for high net worth individuals have access to the IPO, according to Steve Austin, a spokesman for the Boston-based firm.
Fidelity has a strategic relationship with Deutsche Bank that allows them to offer the GM shares to their customers, he said. Austin declined to say what Fidelity’s allocation will be for the IPO or how much demand it’s seeing from its clients.