Clock Ticking on GM IPO
By: David Silver, Research Analyst
I have received calls from a few reporters each day since General Motors released its second quarter results last Friday asking for my take on what the General Motors IPO will mean for investors and the U.S. taxpayers. First, I’ll answer the U.S. taxpayer question. The IPO, which is expected to be in October or November of this year, oddly enough right near midterm elections (coincidence? I think not), is rumored to be for almost $20 billion; I expect more in the $16 billion to $18 billion range. A $20 billion IPO would make it one of the largest IPO’s ever; let’s be honest, the new GM shouldn’t demand that kind of cash. So as taxpayers, we own 61% of the company, and assuming a similar percentage will be sold, that means approximately $10 billion will be sold for the sake of the U.S. taxpayer. There is no doubt in my mind that we will see the Administration patting itself on the back, congratulating itself, telling the public that the investment into the automakers was a good idea. So on an investment of almost $70 billion, GM has paid back a little more than $9 billion, and with the potential to receive an additional $10 billion. So 12 months after our investment, we are still down 70%, but many people are already saying it is a success.
The U.S. taxpayer already owns 61% of General Motors, and is owed almost $60 billion. It seems that the retail investor will have difficulty getting in on the first offering, but if it was available, would you buy into the latest General Motors IPO?
C. No, but would consider making the investment once the government’s investment is completely paid back
Let me know what you think at our website www.wstreet.com.
There was an article on WSJ.com saying that preferred shares will also be offered with the IPO. We have thought this was a good idea, and another way to take in another $5 billion and attract some of the larger hedge funds. It is also interesting that many at GM seem to want to be distancing themselves from the government but even after the IPO, the government will be the largest shareholder (by a HUGE margin) and the new CEO is one of its “board appointees.” CEO Ed Whitacre (he is stepping down September 1) doesn’t like the “Government Motors” stigma and has tried to distance the Company from the Administration; however, it is tough to get a gauge on how much influence the government has on the day to day operations at the Company. Newly appointed CEO Dan Akerson was an appointee of the Treasury after GM was led through bankruptcy. Mr. Whitacre set the Company on what seems like a successful path, but will Mr. Akerson follow that path or will he choose his own path? Europe still needs to be reworked and with the sovereign debt problem and the potential for weak sales into the foreseeable future, it will not be as easy as it was in the United States.
The filing, which has been expected every day since last Friday, has yet to be filed, but it is expected to give a vague portrayal of what GM hopes to accomplish through the IPO, as well as outlining some of the future risks for the company. Also included will be detailed financial statements. The actual size and value of the offering will be determined at a later date, but the filing will give a glimpse in how GM will be playing it. If it goes for a $20 billion offering, the company is swinging for the fences; some of the risks are that it could be undersubscribed and cause serious pressure. On the other hand, if the company comes in too low, investors could be asking what they don’t know that management does. A positive for going more conservative is that it allows it to be oversubscribed and pushes the value higher right out of the gate. Additionally, it opens the door for a secondary offering on the heels of the first. For my investment as a taxpayer, I hope the company goes for the latter.
General Motors is rumored to be listing on both the NYSE and TSX (Toronto Stock Exchange) in a nod to the Canadian government which also helped GM to avoid liquidation as well as usher it through a quick bankruptcy.