General Motors Co. prepared for a dramatic return to the stock market on this morning with what is set to become the world’s largest share offering less than a year and a half after emerging from bankruptcy.
GM shares were set to begin trading on the New York and Toronto stock exchanges, capping the first stage of a turnaround that has taken the 102-year-old automaker from near-death in 2008, via a 2009 bailout, to unlikely Wall Street flotation favorite in 2010.
President Barack Obama hailed what is already the biggest IPO in U.S. history as a “major milestone” for the company’s turnaround and the entire U.S. auto industry. GM raised $20.1 billion on Wednesday after pricing the shares at $33 each — the top of the proposed range.
The IPO values GM at about $63 billion. Including an option that would allow underwriters to sell more shares, GM looks set to raise $23.1 billion, eclipsing the record $22.1 billion raised by Agricultural Bank of China in July.
The successful sale offers a partial exit for the Obama administration after its unpopular $50-billion bailout.
The rescue left the Treasury with a 61 percent stake and the automaker with the embarrassing nickname “Government Motors.”
The government part of the share sale amounts to 23.9 percent rising to a possible 27.5 percent. At $33 a share, the partial sale represents a loss of about $9 billion on taxpayers’ original investment assuming the extra shares go at the same price. The GM stock price will need to rise by 47 percent to just under $49 for the U.S. government to break even on its follow-on stock sales.
Trader Stefan de Schutter of Alpha Trading brokerage said:
“It’s absolutely remarkable how the sentiment has totally changed over such a short time period … it is evident that investor optimism surrounding the GM IPO is also pushing car stocks in Germany so that is certainly a good sign.”
By 1155 GMT the Stoxx 600 European Autos Index was up 2.43 percent.
“It is seen to be a better bet with stronger and clearer financial position after its restructuring and IPO, and that will give investors confidence to hold the stocks,” said William Lo, analyst at Ample Finance Group, adding: “We expect to see about 10 percent upside (on debut)..” David Buik, senior partner at broker BGC Partners, said the indicative grey market price was $37-37.50, a gain of as much as 13.6 percent.
Even after raising the IPO price and offering size, underwriters had far more potential investment lined up than the deal could accommodate, sources said.
Sovereign wealth funds in the Middle East and Asia and other large international investors will account for less than 5 percent of the total GM offering including common and preferred shares and the overallotments, a source said.
China’s SAIC Motor Corp is among shareholders, confimring on Thursday that it bought a 1 percent stake.
The reversal in sentiment toward GM pointed to renewed confidence in an industry that was pushed to the brink of collapse before unprecedented government intervention.
It also offers hope for a range of auto-related companies, including smaller automaker Chrysler, that are looking to tap the credit and equity markets in coming months, analysts said.
Sergio Marchionne, CEO of Chrysler partner Fiat said the IPO would help to understand the market’s logic in terms of pricing expectations.
GM’s initial valuation represents a more than 9 percent premium to Ford Motor Co — GM’s nearest rival and the only U.S. automaker to have avoided a government bailout.
TEST FOR THE NEW TEAM
The GM IPO was the first major test for GM’s new management team led by Dan Akerson, 62, a former head of buyouts at The Carlyle Group who was placed on the GM board by the Obama administration.
“The new leadership team is doing very good work. Market share is up, prices per unit are up,” said Xavier Mosquet, a senior partner at The Boston Consulting Group who advised the Treasury on its intervention into the U.S. auto industry.
Akerson was set to ring the opening bell at the New York Stock Exchange on Thursday to mark the start of GM’s trading under the familiar “GM” symbol it had before bankruptcy.
For decades, GM was one of the most widely held and heavily traded shares and its collapse wiped out savings for many small investors including GM retirees and workers.
Still, investors clamored for a piece of the GM IPO, sources familiar with the situation say.
Retail investors will represent over 20 percent of the IPO, or more than $3 billion of stock, a source said.
Big North American mutual and pension fund investors will account for more than 90 percent of the IPO, the source said.
In GM’s pitch, executives led by Akerson made the case restructuring had left the automaker with sharply lower costs and the ability to withstand a downturn as punishing as the one that took hold in 2008 without losing money.
BRIGHT SPOTS … AND THEN EUROPE
GM is on track for its first full-year profit since 2004.
It has touted its market-leading position in fast-growth emerging markets led by China, and success with redesigned cars like the Buick LaCrosse, as well as the ability to innovate through the crisis embodied Chevy’s Volt plug-in hybrid.
Analysts still see challenges for GM, including the overhang of the U.S. government’s 33-percent post-IPO ownership stake.
“I think that GM’s model still very much lags other companies’ models,” said analyst Heino Ruland of Ruland research. “Not only Chrysler and Ford but also European groups. The pricing is also rather high,” he added.
Other investor concerns include continued losses in GM’s European arm — $1.3 billion over the past three quarters — and contract talks next year with United Auto Workers.
Post-IPO, a union health care trust will keep 13 percent of GM shares with a board seat representing its interests.
UAW President Bob King said on Wednesday that he welcomed a high GM stock price but said his workers would not offer any new concessions next year.
