General Motors Said to Boost IPO Price By 14% as Demand Grows
General Motors Said to Boost IPO Price By 14% as Demand Grow
Jeff Kowalsky/Bloomberg
General Motors Co., the automaker majority owned by the U.S. Treasury, may sell shares for as much as $33 in an initial public offering , 14 percent more than originally planned, said four people familiar with the matter.
General Motors Co., the automaker majority owned by the U.S. Treasury, may sell shares for as much as $33 in an initial public offering , 14 percent more than originally planned, said four people familiar with the matter. Photographer: Jeff Kowalsky/Bloomberg
Nov. 15 (Bloomberg) -- Gerald Meyers, a professor at the University of Michigan Business School and former chief executive officer of American Motors Corp., discusses the outlook for General Motors Co.'s initial public offering and the possibility of China's SAIC Motor Corp. buying up to a 1 percent stake in the company. Meyers speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)
General Motors Co. may sell shares in its initial public offering for as much as 14 percent more than originally planned, making it the second-largest U.S. IPO on record, according to four people familiar with the deal.
GM, 61 percent owned by the U.S. Treasury, will probably set a price of $32 to $33, said one of the people, who declined to be identified because the discussions are private. The automaker, which had filed with the Securities and Exchange Commission on Nov. 3 to offer 365 million shares for $26 to $29 each, would raise $12 billion selling shares at the new high end of the price range on Nov. 17.
GM also plans to sell $4 billion of preferred stock, up from $3 billion, one of the people said. Demand has been so strong for both offerings that the Detroit-based company and the U.S. Treasury discussed increasing the number of common shares sold, according to three of the people. GM reported a third- quarter profit of $2.16 billion last week.
“The Detroit automakers are finally right-sized and smart,” said Frank Ingarra, co-portfolio manager at Novato, California-based Hennessy Advisors Inc., which oversees $900 million, including Ford Motor Co. shares. “They finally got some tough, good management in there finding better ways to do things.”
Treasury’s Stake
GM, led by Chief Executive Officer Dan Akerson, may file an amended registration statement today that includes the new price range, one of the people said. Noreen Pratscher, a GM spokeswoman, declined to comment.
The increased price would help the U.S. government recoup more of the public’s $49.5 billion investment in the company. The Treasury needs to sell GM’s stock for an average of $43.67 a share -- 51 percent higher than the top end of the original range and 32 percent more than the $33 level -- to break even, data compiled by Bloomberg show.
At $33 a share, the IPO would raise $8.7 billion for the Treasury, compared to $7.6 billion at $29 a share, based on GM’s regulatory filings and data compiled by Bloomberg. The entire common stock offering would raise as much as $13.9 billion at $33 a share if the overallotment option for underwriters to sell more stock is exercised, data compiled by Bloomberg show.
While the Treasury prefers to sell fewer shares at higher prices so it can more easily recoup its investment, GM may seek to sell as many shares as possible to cut the government’s stake, according to Maryann Keller, founder of a self-named consulting firm in Stamford, Connecticut. The automaker’s banks want a larger offering to increase their fees, she said.
‘An Art’
“Pricing an IPO is as much an art as it is a science,” Steven Rattner, former head of President Barack Obama’s Automotive Task Force, said during a speech in Detroit yesterday. “It’s clear this offering will be a huge success. It will price higher rather than lower.”
Morgan Stanley and JPMorgan Chase & Co., among GM’s lead investment banks, have urged the U.S. Treasury to offer more shares than the 419.8 million that would be sold if the current overallotment option is exercised, one of the people said. Mary Claire Delaney, a Morgan Stanley spokeswoman, and Jennifer Zuccarelli, a spokeswoman at JPMorgan, declined to comment.
Without exercising the option to sell additional shares, the Treasury Department’s stake would fall to 43 percent from 61 percent, GM has said in filings. If the current overallotment option were used, the stake would drop to 41 percent, GM said.
Company executives are continuing to promote the IPO to potential investors this week in the U.S. Midwest and Europe.
The Kuwait Investment Authority may buy a stake of 1 percent or less, one of the people said. Bader al-Saad, managing director of the sovereign wealth fund, told reporters on Nov. 6 that it was considering an investment in GM. SAIC Motor Corp., GM’s partner in China, will probably be among the buyers, three people familiar with the plans said last week.
Second-Largest IPO
The offering, which would be the second-largest in U.S. history at the new price behind Visa Inc.’s $19.7 billion IPO in March 2008, comes 16 months after GM emerged from bankruptcy.
The automaker has posted earnings of $4.77 billion so far this year. That tops the $4.46 billion profit by Toyota City, Japan-based Toyota Motor Corp., data compiled by Bloomberg show.
GM, which lost $82 billion from 2005 to 2008, was valued at an average of 10.3 times profit from 2000 through 2004, monthly data compiled by Bloomberg show. Dearborn, Michigan-based Ford traded at an average of 13 times earnings in the same period.
Ford gained 70 cents, or 4.3 percent, to $17 in New York Stock Exchange composite trading yesterday, the highest closing price since Jan. 8, 2004. The shares have advanced 70 percent this year, including a 39 percent jump since Oct. 1, data compiled by Bloomberg show.
Relative Value
At $33 a share, GM would have a market capitalization of $49.5 billion, based on 1.5 billion shares that will be outstanding after the IPO, data compiled by Bloomberg show.
That would value GM at 7.8 times this year’s earnings, based on net income in the first nine months of 2010. Ford trades at 8.2 times analysts’ estimates for 2010 profit, the data show.
General Motors Corp. filed for Chapter 11 bankruptcy protection on June 1, 2009, after the failure of New York-based Lehman Brothers Holdings Inc. in September 2008 froze credit markets and helped spur the worst recession since the Great Depression.
Morgan Stanley, JPMorgan, 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.
To contact the reporters on this story: David Welch in Southfield, Michigan, at dwelch12@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net; Craig Trudell in New York at ctrudell1@bloomberg.net.
To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Daniel Hauck at dhauck1@bloomberg.net.
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