GM Increases IPO to $12 Billion on Demand for Shares

GM Increases IPO on Demand for Shares
GM reported third-quarter net income of $2.16 billion last week, bringing its earnings this year to $4.77 billion. Photographer: Jeff Kowalsky/Bloomberg

General Motors Co. plans to raise as much as $12 billion in the second-largest U.S. initial public offering on record after increasing the asking price by 14 percent, according to a regulatory filing today.

GM, 61 percent owned by the U.S. Treasury, is now selling 365 million shares at $32 to $33 each, today’s filing with the Securities and Exchange Commission said. The IPO was already multiple times oversubscribed at the original range of $26 to $29 apiece, according to two people familiar with the deal. GM’s underwriters also plan to exercise an option to buy 54.8 million more shares, the people said.

The IPO, scheduled for tomorrow, will help Chief Executive Officer Dan Akerson return some of the $49.5 billion GM received in a taxpayer bailout last year. The Treasury, which is taking a loss on its portion of the sale, will break even only if the shares climb at least 50 percent, data compiled by Bloomberg show. At $33 each, the sale would give the Detroit-based automaker a market value of almost $50 billion, compared with Ford Motor Co.’s $57.3 billion.

“There’s much more demand for the shares they’re offering,” said Josef Schuster, the Chicago-based founder of IPOX Capital Management LLC, which oversees $3 billion. “They’ve done an extremely good job in marketing this IPO.”

Visa’s IPO

The IPO would be the second-largest in U.S. history, after San Francisco-based Visa Inc.’s $19.7 billion sale in March 2008, and comes 16 months after GM emerged from bankruptcy. The biggest U.S. automaker also increased a preferred stock offering to $4 billion today, $1 billion more than it had planned.

GM is selling shares after the Standard & Poor’s 500 Index rose to a two-year high this month on speculation that the U.S. economy won’t slip back into a recession. The benchmark gauge for U.S. equities fell for a fourth straight day today, the longest losing streak since August, even after U.S. factory production increased in October by the most in three months.

Shares of Ford, the second-largest U.S. automaker, surged to $17 yesterday, its highest closing price since Jan. 8, 2004, before slipping 2.9 percent to $16.51 today in New York Stock Exchange trading.

“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 shares. “They finally got some tough, good management in there finding better ways to do things.”

Earnings Results

GM reported third-quarter net income of $2.16 billion last week, bringing its earnings this year to $4.77 billion. That tops the $4.46 billion profit by Toyota City, Japan-based Toyota Motor Corp., data compiled by Bloomberg show.

Demand for the IPO has been strong enough that GM and the Treasury discussed whether to sell shares in excess of the current overallotment option, four people familiar with the offering said. They declined to be identified because the discussions are private.

GM is seeking to sell as many shares as possible to reduce the government’s stake, and the automaker’s banks want a larger offering to increase the fees they’ll earn, said Maryann Keller, founder of a self-named consulting firm in Stamford, Connecticut. The Treasury prefers to sell fewer shares at higher prices so it can more easily recoup its investment, she said.

Breakeven Price

The Treasury needs to sell GM stock at an average of $43.67 each to break even on its entire investment, data compiled by Bloomberg show. That means the shares would have to climb to almost $50 for the government’s remaining stake to offset its loss in the IPO, the data show.

At $33 a share, GM is valued at 7.8 times this year’s earnings, based on its net income in the first nine months of 2010. Dearborn, Michigan-based Ford trades at 8 times analysts’ estimates for 2010 profit, the data show.

While GM will have positive earnings before interest and taxes in the fourth quarter, they will be “significantly lower” than the first three quarters of the year, Akerson said on a Nov. 10 conference call. Ford said in an Oct. 26 conference call that fourth-quarter earnings will be “lower compared with recent quarterly results.”

“You’re investing in the fourth quarter now to have better results in 2011 and 2012,” David Whiston, a Chicago-based analyst at Morningstar Inc., said yesterday in a telephone interview. “It does take money to make money. You have to invest to get the product out the door, and it’s a highly capital-intensive industry.”

Relative Value

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. Ford traded at an average of 13 times earnings in the same period.

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 cause the longest recession since the Great Depression.

Without exercising the overallotment, the IPO would lower the Treasury’s stake to 43 percent, according to GM’s filings. If the option was used, the stake would drop to 41 percent.

The IPO may reduce the UAW retiree health-care trust’s stake to 15.3 percent from 19.9 percent, and the Canadian government may cut its holdings to 9.6 percent from 11.7 percent, according to SEC filings.

GM’s underwriters planned to stop taking orders for shares at 4 p.m. New York time today, according to a person familiar with the IPO.

Kuwait, SAIC

The Kuwait Investment Authority may buy a stake of 1 percent or less, one person familiar with the deal said yesterday. Shanghai-based SAIC Motor Corp., GM’s partner in China, will probably be among the buyers, three people familiar with the plans said last week.

Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. are leading the IPO that includes 35 underwriters, the filings said. Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc. and Royal Bank of Canada are also listed in the prospectus.

GM’s common shares will be listed on the New York Stock Exchange under the ticker GM and on the Toronto Stock Exchange under the ticker GMM, the SEC filing showed.

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