Nov. 2 (Bloomberg) -- General Motors Co. aims to raise as much as $10.6 billion in an initial public offering that will reduce the U.S. and Canadian governments’ stakes in the largest U.S. carmaker, two people familiar with the plan said yesterday.
GM, 61 percent owned by the U.S. Treasury Department, will offer 365 million shares at $26 to $29 each, according to the people, who asked not to be identified because the plans are private. The automaker also will offer $2 billion to $3 billion of preferred shares that later will become common stock, said the people.
Chief Executive Officer Dan Akerson is working toward returning the $50 billion GM received in a taxpayer bailout last year. The Treasury, seeking to win higher prices in future offerings, is selling less than the $12 billion to $16 billion that people familiar with the situation said Detroit-based GM and its investment banks had considered earlier.
“This makes sense,” George Magliano, a senior economist for IHS Automotive who is based in New York, said in an interview yesterday. “They need to protect the price of the offering. The IPO was never intended to buy out all of the government and union stakes in one fell swoop. It’s got to be done over time, and you need to get the right price.”
An amended registration statement that contains the number of shares and the price range for the offering will be filed with the Securities and Exchange Commission as soon as today, an election day in the U.S., one of the people said.
For the U.S. to break even it needs to sell at an average price, before splits, of $131 a share, a person familiar with the matter said in September.
With a 3-for-1 split, the stock would need to rise to almost $43.67 a share -- almost 60 percent more than the midpoint of the planned offering -- to reach the breakeven point, said a person familiar with the planning.
The suggested offering price would value GM at three times Ebitda, or earnings before interest, taxes, depreciation and amortization, while Ford Motor Co. trades at five times that measure, said the person. The discount should ensure the offering is over-subscribed and may lead to a jump in the price when trading begins Nov. 18, the person said.
Bonds issued by GM’s bankrupt predecessor dropped. The 8.375 percent bonds due July 2033, which were issued by old General Motors Corp. and convert to shares in the new GM, fell 3.5 cents to 33.5 cents on the dollar at 9:43 a.m. in New York, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.
GM’s offering range values the company at about $50 billion to $60 billion, Guy LeBas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC, wrote today in a note.
The U.S. Treasury will likely sell about $7 billion of stock, one of the people said. About $2 billion of shares will be sold by the United Auto Workers retiree health-care trust, and less than $1 billion may be sold by Canada, one of the people said.
The medical trust’s sale would be worth about 25 percent of its stake, while Canada will sell about 20 percent of its shares, one of the people said.
The offering may price on Nov. 17 and the shares would begin trading the following day, the person said. A roadshow in which GM will pitch investors in North America and Europe will begin tomorrow or Nov. 4, the person said.
Noreen Pratscher, a spokeswoman for GM, didn’t respond to a telephone message seeking comment today.
“It’s all up to the company” when it files with the SEC and begins its roadshow, said Steven Adamske, a spokesman for the Treasury department.
As many as five sovereign wealth funds are likely to purchase as much as $2 billion of stock in the offering, one of the people said. Investment bankers for GM met with the funds and private investors in the Middle East and Asia to gauge interest in the offering, two people familiar with the meetings said last month.
SAIC Motor Corp., which has partnered with GM to make cars together in China for more than a decade, has said it may participate in the offering.
The offering comes after the Standard & Poor’s 500 Index climbed 13 percent in September and October, the best performance for those two months since 1998, according to data compiled by Bloomberg. A total of 21 companies sold shares through IPOs on U.S. exchanges last month, the most since 22 initial sales in December 2007, the data show.
“The market is right and they’re going to merchandise this globally,” said Joe Phillippi, principal of AutoTrends Inc., a consulting firm in Short Hills, New Jersey. “I think they have a good shot of getting this done.”
Akerson, 62, took over as CEO from Ed Whitacre in September and will succeed him as chairman at the end of the year. The former Carlyle Group managing director has said he wants to improve quality and accelerate decision-making at the world’s second-largest automaker.
“I don’t think any investor group has infinite patience, and I’m sure that the taxpayers of America would like to see a return on their investment,” Akerson told reporters on Sept. 16. “That’s one of the goals that we have.”
GM reported second-quarter net income of $1.54 billion on Aug. 12 and had a profit of $1.07 billion in the first three months of the year. Revenue in the second quarter increased 44 percent from a year earlier to $33.2 billion on rising sales of the Buick Excelle sedan in China and Chevrolet Equinox sport-utility vehicle in the U.S.
The Treasury Department has retained the right to determine how much of the government’s holding will be included in the initial sale. Potential investors are being sought “across multiple geographies, and the offering has prioritized that so-called retail investors have opportunity to participate,” according to regulatory filings.
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., Royal Bank of Canada and UBS AG also are listed as underwriters.
General Motors Corp. filed for Chapter 11 bankruptcy protection on June 1, 2009, after posting $88 billion of losses since 2004, the last year the company reported an annual profit. General Motors Co. emerged 39 days later.
GM’s common shares will be listed on the New York Stock Exchange under the ticker GM.
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