GM $10.6 Billion IPO to Make Treasury Minority Shareholder
General Motors Co. will reduce the U.S. government to a minority shareholder as it seeks to raise as much as $10.6 billion in an initial public offering.
GM, 61 percent owned by the U.S. Treasury Department, will sell 365 million shares at $26 to $29 each, the company said yesterday in a filing with the Securities and Exchange Commission. The Detroit-based automaker will also offer about $3 billion of preferred shares that later will become common stock.
Chief Executive Officer Dan Akerson is working toward returning the $50 billion GM received in a taxpayer bailout last year. GM and the Treasury, seeking to win higher prices in future offerings, are selling less than the $12 billion to $16 billion that people familiar with the situation said the company and its investment banks had considered earlier.
“The IPO is priced in a way that will certainly get the taxpayers most of their money back,” Steven Rattner, the former head of the U.S. government’s Automotive Task Force, said today in an interview on “InsideTrack” on Bloomberg Television. “It is a little bit light relative to what some of us expected. I would’ve liked to have seen $35 or $40 a share.”
For the U.S. to break even, GM needed to sell at an average price, before splits, of $131 a share, a person familiar with the matter said in September.
Break-Even Point
With a planned 3-for-1 split, the stock would need to climb to $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 IPO may lower the Treasury Department’s stake to 43 percent, according to the regulatory filing. The UAW’s health- care trust may reduce its 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, the filing said.
The Treasury will likely sell as much as $7.64 billion of stock, excluding an over-allotment option, the filing showed.
“There’s going to be a certain supply of dollars for an IPO of a cyclical stock like GM that says it’s at the trough of a market and so the share price is a bargain,” said Sean McAlinden, who advised the Obama administration’s task force as chief economist at the Ann Arbor, Michigan-based Center for Automotive Research. “The question is whether there’s $10.5 billion that believes that.”
GM said separately yesterday that it had third-quarter net income attributable to common stockholders of $1.9 billion to $2.1 billion. The company had earnings before interest and taxes of $2.2 billion to $2.4 billion on revenue of about $34 billion for the three months ended Sept. 30, according to a statement.
Relative Value
At the IPO’s midpoint price of $27.50 each, GM would have a market capitalization of $41.25 billion, based on 1.5 billion shares that will be outstanding after the offering, according to the company’s filing and data compiled by Bloomberg.
That would value the automaker at 7.37 times to 7.73 times this year’s earnings, based on GM’s net income of $4 billion to $4.2 billion in the first nine months of 2010, the filing and data compiled by Bloomberg show.
Shares of Dearborn, Michigan-based Ford Motor Co. trade at 7.33 times analysts’ estimates for 2010 profit, according to data compiled by Bloomberg.
GM needs to fix its unprofitable Europe region and continue to rebuild the image of U.S. brands to boost investor confidence, according to Paul Ballew, chief economist for Nationwide Mutual Insurance Co. in Columbus, Ohio.
GM Europe
“A lot of the things we wanted to do over 10 years have been done through the bankruptcy,” said Ballew, a former General Motors Corp. economist. “GM Europe is on the top of their list in terms of finding a way for that particular division to return to some semblance of profitability.”
GM said in the regulatory filing that it would have positive earnings before interest and taxes in the fourth quarter. The company also said that EBIT would be lower than prior quarters because it will be building a different mix of vehicles and engineering costs for future models will be higher. GM is introducing the new Chevrolet Volt gas-electric car and Chevy Cruze compact during the quarter.
GM’s deliveries in October climbed 3.5 percent to 183,759, the company said yesterday in a statement. The automaker exceeded estimates for a decline of 6.3 percent, the average of three analysts’ projections, as customers bought more Buick and GMC brand vehicles. Industrywide light-vehicle sales rose to a 12.3 million annual rate, the fastest pace since August 2009.
Pricing Date
The offering may price on Nov. 17 and the shares would begin trading the following day, people familiar with the plans have said. A roadshow in which GM will pitch investors in North America and Europe begins this week, said the people, who declined to be identified because the plans are private.
As many as five sovereign wealth funds are likely to purchase as much as $2 billion of stock in the offering, a person familiar with the plans 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.
‘Healthy Enough’
“Equity markets have been supportive of IPO activity in recent months,” said Lawrence Creatura, a Rochester, New York- based fund manager at Federated Investors Inc., which oversees about $350 billion. “The market is healthy enough to withstand IPOs and that was probably a factor in choosing this moment.”
Akerson, 62, took over as CEO from Ed Whitacre in September and will succeed him as chairman by 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.”
Underwriters
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.
UBS AG of Zurich, listed as an underwriter in GM’s prospectus on Oct. 28, was omitted from the automaker’s latest filing yesterday with the SEC.
A $10.6 billion share sale by GM would be the biggest U.S. IPO since Visa Inc. raised $19.7 billion in March 2008. The offering would be the third-largest all-time in the U.S., also trailing AT&T Wireless Group’s $10.62 billion offering in 2000.
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 and on the Toronto Stock Exchange under the ticker GMM.
To contact the reporters on this story: Craig Trudell in New York at ctrudell1@bloomberg.net; David Welch in Southfield, Michigan, at dwelch12@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net.
To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net; Jamie Butters at jbutters@bloomberg.net.