By David Silver
The General Motors (NYSE:GM) IPO is right around the corner (expected this Thursday) and on Monday November 15, "someone familiar with the matter" said that it is increasing its target IPO price to $32 to $33 from the original target of between $26 and $29. GM said it would issue 365 million shares in the IPO, totaling 24% of the company's stock. In response to strong demand from investors, the banks organizing the IPO are likely to exercise an over-allotment option that could add another 54.8 million shares. GM also plans to sell $4 billion of preferred stock, up from $3 billion. Separately, the US government is weighing whether to increase the number of shares offered by as much as 20%, or another 84 million shares.
This week, the US Treasury plans to sell, at a minimum, 263.5 million shares. Canada's federal and provincial governments, which aided in the rescue, will sell at least 30.5 million shares combined while a health care trust run by the United Auto Workers will sell at least 71 million. If the number of shares to be sold is increased, they could come from any combination of the major holders.
If the stock is priced at $32.50, the midpoint of its new price range, the IPO would raise a total of $18.2 billion, assuming 54.8 million shares as part of the over allotment and mandatory convertible shares. Under the original price range, it was expected to raise as much as $15 billion. Increasing the offering by 20% would push the amount up by another $2.7 billion.
Just as I have been saying, four of GM's larger investors in the new GM will be sovereign-wealth funds. GM indicated that three or four sovereign-wealth funds are planning to buy more than $1 billion dollars combined in the IPO. Sovereign wealth funds are set up by governments to invest in businesses. China's largest auto maker, SAIC Motor Corp. (SAI), is on track to buy around $500 million in GM shares, pending Chinese government approval, people familiar with the matter have said.
I have also read that the IPO is eight times oversubscribed, so if there is that much demand for the IPO, why doesn't the government try to liquidate more of its stake? Part of the reason is because part of the success of the IPO is dependent on the US government being a backstop for General Motors (and investors). The US government is acting as a stop loss for the Company, as there is no risk of bankruptcy (or even failure).
When a company has a strong IPO, the original investors are rewarded with that strength in the secondary market (stock price moving higher right after the IPO), and the company IPO'ing is happy with the money it raises and the strength momentum afterwards. However, we are the shareholders receiving the payments, and I say we get as much as possible! If the stock is over diluted, so be it, I want my money! As JG Wentworth says on those annoying infomercials, "it's my money, and I want it now!" If it takes six to twelve months to deal with the number of shares outstanding, so be it, we are not in this to make sure the new shareholders make money, we are in this to be made whole again. As a taxpayer, I want to be out of the automaker business ASAP.
Disclosure: No position