by David Silver
So the wait is finally over, General Motors filed its needed paperwork with the SEC for its IPO a little more than a year after it entered bankruptcy. It is not really the result I expected, but it is a small step. The Company filed its second quarter earnings release on August 13 and hinted at today’s S-1 filing. I am still working my way through the filing (it is more than 300 pages long), but the initial number that the Company hopes to offer is staggering, and not in a good way. I wrote on Wednesday that I hoped GM would be conservative with its offering in the hopes of generating extra excitement for the IPO: however, only filing for a $200 million IPO is a bit ridiculous. Yes, it is not all the money it hopes to raise, but saying only $200 million just seems like a waste of everyone’s time. Tesla (TSLA) sold 400 vehicles last year, and GM sold more than 8.4 million around the world, and the Tesla IPO raised $224 million. Something seems a bit off, no? However, both companies are completely dependent on government money.
I still believe the Company will end up raising between $16 and $18 billion through the IPO, but the filing indicates that only the proceeds from the preferred stock (about $100 million) will go to funding the Company. However, the IPO is expected to get rid of 20% of the government’s investment (about $12 billion), but it should be that the U.S. tax payer has to be made whole again (we would lose money anyway) before anyone can make a dime off of the new GM stock. Will that actually happen? Not likely.
So the Street has more data now to digest, but from the looks of it, retail investors won’t have a bite at the first apple. Rumors had it that there was a no holds barred Royal Rumble between underwriters to be a primary underwriter (just kidding, but that would be something I would pay to watch), but Citi (C), JP Morgan (JPM), and Bank of America (BAC) won out. So now it is going to be institutions and large hedge funds that are able to get involved in the IPO. As a retail investor, I wouldn’t be interested in investing in the new GM. The hype is going to be out of this world, but let’s look at the actual business model.
- GM North America (GMNA): Dependent on light trucks, SUVs, and crossovers. The Volt has the potential to be a large failure, and the Company still has to prove that it can compete in the small and medium sized car segment.
- GM Europe (GME): Opel and Vauxhall continue to languish, with sovereign debt problems and incentives expiring sales, and production promise to make the turnaround much more difficult than across the pond.
- GM International Operations (GMIO): Includes Latin America and Asia as well as Russia. Possibly the best segment for the Company as GM is the second largest automaker in China (behind Volkswagen) and has a growing presence in Russia, Brazil and India. China sales slowed during the most recent quarter and it would be great, but 50% growth year over year just isn’t sustainable over the long term.
One of the biggest problems for the “Old GM” was debt and the Company got rid of that problem with its bankruptcy problems, but now it has to survive in a relatively stagnant industry. Yes, we will see growth for the next few years in the United States, but if one thinks we are getting back to the 17 million unit level anytime soon, you have another thing coming to you. The Street now has a little more data to punch into their excel spreadsheets, but the question now becomes how quickly can the Company turn this announcement into an actual IPO? Some think it will happen at the end of October through Thanksgiving in the U.S. As I said in an earlier note, coincidence that it is right near Election Day? I think not. I could understand the victory laps around that time if all of a sudden GM raises $60 billion through an IPO and the US taxpayer is no longer in the car business, but that has about much chance of happening as… (You can fill in the blank with the most ridiculous things you can think of).
So to recap, General Motors filed for its IPO, indicated only $200 million as its minimum, and now we are back in the waiting game. So Dan Akerson (new GM CEO that takes the job September 1) has his first big challenge, getting the Company trading before the end of the year. Unfortunately, I think it will happen. By Thanksgiving, I expect to see the new shares of GM trading on both the NYSE and Toronto Stock Exchange (TSX). I would like to see the Company wait a little longer, further integrate its new finance arm and give the world economy time to get over the next little bump, but I wasn’t hired as part of the Auto Task Force.