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GM Said to Consider Sale of Preferred Stock With IPO

General Motors Files for IPO
General Motors Co. filed for an initial public offering that may be the second-largest American in history. Photographer: Jeff Kowalsky/Bloomberg

General Motors Co. may sell preferred stock alongside its initial public offering of common shares, according to a draft of its regulatory filing and two people briefed on the plan.

GM would get proceeds from the preferred offering and will not sell shares itself in the common offering, according to the draft and the people, who declined to be identified because the filing hasn’t been released. The automaker, 61 percent owned by the government, will seek to raise $12 billion to $16 billion in the second-biggest American IPO in history, a person familiar with the plan said last week. The U.S. Treasury will sell some of the shares it holds in the company, the people said.

The draft suggests that the Detroit-based automaker’s offering, which may be filed with the Securities and Exchange Commission today, is aimed at reducing the Treasury’s stake rather than raising proceeds for GM. Outgoing Chief Executive Officer Ed Whitacre has pushed to end government ownership of the company, which received a $50 billion taxpayer bailout following its bankruptcy in June 2009.

“They can hopefully generate enough funds to help operations,” said James Bell, executive market analyst at Kelley Blue Book in Irvine, California. “But the more important issue for them is to reduce the government’s position, in terms of the company’s public image.”

Treasury’s Stake

GM aims to sell a fifth of the Treasury’s 304 million shares, two people familiar with the plan said in June. That would cut the government’s stake to less than 50 percent.

The preferred shares were added to attract hedge funds and other new investors because the shares have attributes of both debt and equity, the people familiar with the plans said.

Randy Arickx, a GM spokesman, declined to comment, as did Mark Paustenbach, a spokesman for the Treasury.

The preferred shares will be convertible to common stock at a price that wasn’t specified and are contingent on the completion of the common share sale, according to the people, who verified details of the IPO registration draft that may be modified before it is filed with the SEC as early as today. The proceeds will be used for general corporate purposes.

GM’s initial offering is code-named “Project Dawn,” according to the draft document. A $16 billion IPO would be the second-largest in U.S. history, behind San Francisco-based Visa Inc.’s $19.7 billion sale in March 2008, data compiled by Bloomberg show.

NYSE, Toronto Exchange

The common shares will be listed on the New York Stock Exchange and the Toronto Stock Exchange, while the preferred stock would be listed on the NYSE, according to the draft and the people.

Whitacre, 68, said last week that he would step down as CEO Sept. 1 and as chairman at the end of the year, ceding both titles to Dan Akerson, a managing director of the Carlyle Group. Akerson, 61, has been on GM’s board since July 2009 and previously served as chairman and CEO of XO Communications, Nextel Communications and General Instrument Corp.

The Treasury, which retained veto power over GM on the selection of underwriters and fees, agreed to have JPMorgan Chase & Co. and Morgan Stanley of New York lead the offering, people familiar have said, while other banks including Charlotte, North Carolina-based Bank of America Corp. and Citigroup Inc. in New York are also involved in the IPO.

Goldman Sachs Group Inc. of New York didn’t get a top role even after offering to accept a fee of 0.75 percent, which was then imposed by the government on all underwriters, people familiar have said.

Credit Line

GM also has obtained a revolving line of credit worth as much as $5 billion from a group of at least 15 banks, including Morgan Stanley, JPMorgan, Citigroup, Bank of America and Zurich- based Credit Suisse Group AG, a person said last week.

The automaker may hold the offering in November, people familiar with the matter have said. It also may sell stock owned by Canada and a union-led retiree health-care trust, a person familiar with the matter has said.

GM reported second-quarter net income of $1.54 billion last week as vehicle sales and production increased. Profit rose 44 percent from $1.07 billion in the first three months of the year. Revenue increased 44 percent from a year ago to $33.2 billion on growing sales of the Buick Excelle in China and Chevrolet Equinox in the U.S.

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