DETROIT (Nov. 18, 2010) — General Motors Co. priced its public stock offering yesterday at $33 a share — which will generate at least $20.1 billion for the auto maker just 16 months after it emerged from its government-sponsored bankruptcy.
If stock underwriters use a so-called “over-allotment” to sell additional shares, GM expects to generate $23.1 billion from the offering, which would make it the largest stock offering of all time.
“As we prepare to enter the equity markets, all of us at GM are excited about this historic milestone,” GM CFO Chris Liddell said in a statement issued late Nov. 17.
“We are especially appreciative of those who stood by us through the toughest times, and we are dedicated to creating value for all of our stakeholders.”
The offering allows the U.S. government to drastically cut to about a third the controlling stake it acquired when it rescued the auto maker last year.
Responding to strong demand, yesterday GM increased the number of common shares on offer by a third. The revised initial public offering (IPO) terms could cut the U.S. government's stake, now 61 percent, to as little as 33 percent.
The strong response to the stock sale reflects growing investor confidence that GM is moving beyond its unpopular, taxpayer-funded bankruptcy with sharply lower costs and higher profit potential.
Including preferred shares—hybrid securities paying a fixed dividend that will mandatorily convert to equity—the IPO would eclipse Agricultural Bank of China's stock offering in July, which raised a record $22.1 billion.
GM's move to raise the planned number of common shares it will sell comes a day after it boosted the price range for the IPO and increased the preferred shares on offer by a third to $4 billion.
GM had received orders worth about $70 billion for the common stock portion of the offering as of late Nov. 16, a source familiar with the situation said.
From blue chip to basket case
The higher pricing on the stock sale represents a step toward minimizing the cost of a $50 billion U.S. government rescue of the 102-year-old company, which had fallen from blue-chip status to bailout basket case in recent years.
At the time, the Obama administration's GM restructuring triggered intense criticism from both Republicans and taxpayers and left the auto maker with the stigma that it had become “Government Motors.”
But the upsized deal suggests investors see an opportunity for profit and could bode well for other auto industry IPOs.
GM is the first of a slate of auto-related companies—whose ranks include Chrysler Group L.L.C.; Ally Bank, formerly known as GMAC; and parts supplier Delphi—expected to return to public ownership in coming years.
Auto executives and analysts said the reversal in Wall Street sentiment toward an industry that was shut out of the credit markets in 2008 and 2009 was a positive sign.
“This will give us a great, great precursor for the Chrysler IPO. I'm delighted; it couldn't have gone better,” Chrysler CEO Sergio Marchionne said on Tuesday night.
GM filed to sell 478 million common shares for $33 each, and $4.35 billion worth of preferred shares, according to an amended filing with U.S. securities regulators. The preferred part of the IPO is $4.6 billion including the over-allotment.
The auto maker initially filed to sell 365 million shares for $26 to $29 each and $3 billion worth of preferred shares.
GM earned $5 billion in the first nine months of 2010 and is on track for its first full-year profit since 2004.
At the same time, the auto maker has cautioned that fourth-quarter profit will be lower than the rate of the first three quarters because of vehicle launch costs and a higher proportion of less-profitable small cars in its mix of production. GM's European unit also remains unprofitable.
“You're not in GM for a three-month investment,” said Tim Leuliette, a director at Visteon Corp. and longtime U.S. auto industry executive, speaking at the Reuters Autos Summit.
“You're into GM because a critical element, a critical building block of the U.S. economy, has significantly repositioned itself to be competitive in what will, over the long term be, should be, a very attractive position. That's why you get into those kinds of equities,” Mr. Leuliette said.
In a road show for investors spearheaded by GM CEO Dan Akerson and CFO Chris Liddell, the auto maker has emphasized both its sharply lower costs and its exposure to key growth markets like China.
One of the open questions remains whether GM's China partner, state-owned SAIC Motor Corp., will participate in the IPO and how much it will invest.
The two companies have negotiated new cooperation in areas such as electric car programs in talks that began this summer. Under a tentative deal, SAIC had agreed to invest between $500 million and $1 billion in GM pending Chinese government approval, people with knowledge of those discussions said.
But two people familiar with the matter said that as of earlier yesterday, China's Ministry of Commerce had not approved the SAIC investment.
Sources previously told Reuters that sovereign wealth funds in the Middle East and Asia separately had committed a combined $2 billion to GM's IPO.
Feds still No. 1 shareholder
Treasury will remain GM's largest shareholder after the IPO. The stake held by Canada could fall from 12 percent to just more than 9 percent. The retiree health care trust affiliated with the UAW could see its stake drop from almost 20 percent to 13 percent.
U.S. officials have said it is likely to take until the next presidential term for the U.S. government to sell off all of its holdings in GM.
With the IPO priced at $33 per share, the U.S. government will need to see the stock rise by 47 percent to just above $48.50 to break even on its follow-on stock sales over the next several years.
At that level, GM would have a market value of more than $90 billion. By comparison, its closest rival, Ford Motor Co., has a market capitalization of $59 billion after a rally that has sent its stock up 65 percent this year.
Obama administration officials have argued that it would represent a kind of success if the White House breaks even only on the $30 billion that it committed to GM. Just over $19 billion in funding came from the Bush administration.
The GM bailout spared the auto maker from liquidation and saved hundreds of thousands of manufacturing jobs at the company and its suppliers, officials have said.
Underwriters on the GM IPO were led by Morgan Stanley, JPMorgan, Bank of America Merrill Lynch and Citigroup Inc. The shares are expected to begin trading today on the New York Stock Exchange under the symbol “GM” and on the Toronto Stock Exchange under the symbol “GMM.”
This article appeared in Automotive News, a Detroit-based sister publication of Tire Business.