General Motors IPO Attractively Priced

Includes: F, GM, TM
by: IPOdesktop

General Motors' (NYSE:GM) IPO of $10 billion, plus $3 billion of preferred stock with a market cap of $46 billion at the price range mid-point of $27.50, is scheduled for Thursday, November 18, 2010. Investors can expect to make money on GM’s IPO, based on the facts that the investment community hammered down the pricing of GM’s IPO almost 50% from the $82 billion valuation floated the first part of August 2010, and when a comparison is done of the P/E ratios annualized for the nine months ended September 30, 2010: GM, 8.5; Ford (NYSE:F) 20; Toyota (NYSE:TM) 18.

There has been a 50% loss on the government's $50 billion bailout "investment." At the mid-point of the price range, the government's value is $25 billion = 50% loss. The government has been "repaid" $6.7 billion, but that was by borrowing from another government fund which doesn't count -- in other words, borrowing from Peter to pay Paul.

Common stock holders can’t expect to receive any dividends until restrictive debt covenants are removed and unless all preferred stock dividends are current, or until all preferred stock is retired.

UAW funds will receive $8 billion from the offerings and newly issued common stock. GM has agreed to pay the UAW an additional $6 billion for its pension fund, payable on the offering -- $4 billion in cash from IPO stock and new preferred stock sales, and $2 billion in newly issued common stock. In addition, the UAW pension fund will receive another $2 billion in cash from a stock sale.

On an ongoing basis, the UAW pension fund receives $500 million per year in interest from GM preferred stock that was issued post-bankruptcy.

GM also expects to make further discretionary contributions to its U.S. pension plan.

In terms of structural competitive advantages, GM's tax-loss carry-forward could be worth up to $45 billion, from a special one-time federal exemption, according to The Wall Street Journal. In addition, no interest payments on the $37 billion in UAW pension-related liabilities are required.

Meanwhile, fourth-quarter results are expected to be down. GM says it expects “to generate positive EBIT in the fourth quarter of 2010, albeit at a significantly lower level than that of each of the first three quarters, due to the fourth quarter having a different production mix, new vehicles launch costs (in particular the Chevrolet Cruze and Volt) and higher engineering expenses for future products.”

Sources of funds are broken down as follows: Cash on hand is $3,245 million; net proceeds from the Series B preferred stock offering is $2,895 million, for a total of $6,140 million.

Uses of funds are broken down as follows: Purchase of Series A Preferred Stock from the U.S. government, $2,140 million; cash contribution to U.S. hourly and salaried pension plans, $4,000 million, for a total of
$6,140 million.

August 16 GM preliminary IPO report

Disclosure: None