Tag Archive | "General Motors"

GM Offering Will Face Investors’ Doubts on Market Share, Profit

NEW YORK – General Motors Co. will have to convince investors to look past declining market share, less than a year of profitability and management new to the auto industry to buy shares in its initial public offering, Bloomberg reported.

GM, 61 percent owned by the U.S., said its North America market share may fall by 2014, while the company has forecast earnings growth will slow in the second half of the year after a two-quarter return to profitability.

The automaker must have a market capitalization of $69.4 billion after the IPO for the government to be able to break even on its investment, data compiled by Bloomberg show.

GM’s filing with the U.S. Securities and Exchange Commission laid out the challenges the company will face generating enough investor demand to complete an offering that people familiar with the plan have said may be as large as $16 billion.

“It will be a tough sell because the company has only posted two quarterly profits and the CEO is stepping down,” said Peter Jankovskis, who oversees $2.3 billion as co-chief investment officer at OakBrook Investments in Lisle, Illi. “Those aren’t the normal types of things associated with an IPO that’s going to be highly subscribed.”

The company must be worth even more than the $69.4 billion for the U.S. to fully recover its investment if the bondholders and the UAW exercise warrants and dilute the government’s stake, data compiled by Bloomberg show. That’s more than three times the value of GM’s equity at the end of the last bull market in U.S. stocks and 65 percent higher than Ford Motor Co.’s market capitalization of $42 billion.

GM posted profit of $865 million in the first quarter and $1.3 billion in the second quarter. Chief Financial Officer Chris Liddell said last week he expected earnings to moderate in the second half, without giving a specific target.

Recent economic reports have signaled the U.S.’s recovery from the longest recession since the Great Depression is deteriorating. Unemployment claims unexpectedly rose in the first week of August and sales at retailers increased less than forecast last month, reports showed last week.

The Federal Reserve said Aug. 10 that the pace of recovery will probably be “more modest” than forecast.

“This is going to be harder than it would have been if the economy and the auto market were in better shape,” said Joe Phillippi, principal of AutoTrends Inc., a consulting firm in Short Hills, N.J. “Every week, people are ratcheting down their outlook for the economy and that will affect the price of this deal.”

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U.S. Plays Big Role in Share Offering of General Motors

WASHINGTON — As General Motors moves to become a public company again, all the big decisions on the timing, size and price of the share offering will be left to its largest shareholder: the U.S. government.

The Obama administration, mindful of the politics surrounding its $50 billion GM bailout, says it is eager to liquidate its 61 percent stake in GM as swiftly and lucratively as possible, The Wall Street Journal reported.

But administration officials say there is no push to sell shares before the November midterm elections. “We want to do this as quickly as practicable, but in a way that protects our investment,” an Obama official familiar with timing discussions told the Journal.

The outcome of GM’s share offering will be a critical political milestone for the Obama White House. The administration’s decision last year to undertake a federal intervention in the affairs of the nation’s largest auto maker—firing GM chief executive Rick Wagoner and steering it through a bankruptcy restructuring—provoked a backlash among conservatives. GM executives say that backlash also extends to potential customers, who say they will bypass the auto maker because they object to the federal bailout.

The White House said it had to step in to prop up GM and the smaller Chrysler to avoid chaotic collapses at two huge employers in the nation’s heartland.

Now, as President Barack Obama tours the country to defend his economic policies, he has pointed to the rebounding auto industry to make the case that the taxpayer-funded interventions at GM and Chrysler accomplished their goals: Saving two iconic companies and salvaging thousands of jobs.

In a swing through Michigan last month, President Obama said that the entire U.S. auto industry was at risk in early 2009, when his administration decided to usher GM and Chrysler through bankruptcy proceedings with the help of tens of billions of dollars in taxpayer assistance.

“The industry looked like it was going over a cliff,” he told workers at a Chrysler plant.

He then cited figures showing that the U.S. auto industry had hired 55,000 new workers in the year since GM and Chrysler emerged from bankruptcy protection last summer, after shedding 334,000 jobs in the year leading up to the GM and Chrysler bankruptcies.

The GM IPO, though, will end up answering a much simpler question: How much did taxpayers lose—or gain—by bailing out GM last year?

Analysts say that the market would have to value GM’s stock at around $70 billion for the government to recover the whole of its remaining investment—a target that some say is unlikely, but not impossible.

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GM Said to Consider Sale of Preferred Stock Along with its IPO

NEW YORK – General Motors Co. may sell preferred stock alongside its initial public offering of common shares, reported Reuters based on a draft of its regulatory filing and two people briefed on the plan.

GM would get proceeds from the preferred offering and will not sell shares itself in the common offering, according to the draft and the people, who declined to be identified because the filing hasn’t been publicly released.

The automaker, 61 percent owned by the government, will seek to raise $12 billion to $16 billion in the IPO, a person familiar with the plan said last week. The U.S. Treasury will sell some of the shares it holds in the company, the people said.

The offering, which may be filed with the Securities and Exchange Commission today, would be the second-largest in U.S. history, behind Visa Inc.’s $19.7 billion IPO in March 2008. Outgoing CEO Ed Whitacre has pushed to end government ownership of the company, which received a $50 billion taxpayer bailout following its bankruptcy in June 2009.

“They can hopefully generate enough funds to help operations,” said James Bell, executive market analyst at Kelley Blue Book in Irvine, Calif. “But the more important issue for them is to reduce the government’s position, in terms of the company’s public image.”

The preferred shares were added to attract hedge funds and other new investors because the shares have attributes of both debt and equity, the people familiar with the plans said.

Randy Arickx, a GM spokesman, declined to comment, as did Mark Paustenbach, a spokesman for the Treasury.

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GM Files Plan for Fall Initial Public Stock Offering

DETROIT – General Motors Co., moving to unwind itself from government control, filed plans to go public and begin selling common shares as early as this fall, Automotive News reported.

The filing — anticipated for weeks — came just 13 months after GM was restructured in bankruptcy with $50 billion in direct aid from the U.S. government.

GM said the amount of securities offered will be determined by market conditions and other factors at the time of the offering. The number of shares to be sold and the price range for the offering have not been determined, the automaker added.

GM hopes to raise $12 billion to $16 billion with the stock sale, Bloomberg News reported, making it among the biggest initial public offerings ever.

To make the offering appeal to a wider group of investors, including hedge funds, GM said it may also issue preferred shares.

In a bid to preserve cash, the automaker said it does not plan to pay a dividend on the common shares after the initial offering.

In the filing, GM said weak sales, underfunded pensions and the success of its restructuring efforts in Europe pose risks for the automaker.

While the auto industry has recovered this year, GM said “there is no assurance that this recovery in vehicle sales will continue or spread across all our markets.”

Still, the automaker said it expects its global market share to rise to 12.4 percent by 2014 from 11.9 percent this year.

GM’s ability to achieve long-term profitability depends on the company’s success at enticing customers to consider its products when purchasing a new vehicle, the filing said.

“Our competitors have been very successful in persuading customers that previously purchased our products to purchase their vehicles instead,” the company said.

In North America, GM also blamed its market-share losses over the past three years on negative consumer brand perception. To overcome consumer concerns, the automaker plans to enhance the fuel efficiency of its model lineup – a strategy it said is also key to sustained profits.

The success of the IPO will go a long way in determining how much American taxpayers will recover from their 61 percent stake in the automaker. Bloomberg said GM wants to sell a fifth of the government’s 304 million shares.

After the sale, the government’s stake in GM is expected to drop below 50 percent.

In a statement Wednesday, the Treasury Department said it “will retain the right, at all times, to decide whether and at what level to participate in the offering.”

In addition to the federal government, a UAW retiree health-care trust controls 17.5 percent of GM. Other stakeholders include the Canadian government, with 11.7 percent, and former GM bondholders, with 9.8 percent.

In its statement, GM said the common shares would be sold by “certain stockholders.”

In recent weeks, President Obama has pledged the government will recover all the taxpayer money his administration provided to bail out the auto industry last year.

For the government to recoup its full investment, GM’s market value must reach $70 billion — or 10 times the automaker’s market capitalization before it sought bankruptcy protection in June 2009.

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GM to Recall More than 243,000 Vehicles

WASHINGTON – General Motors Co. said it plans to recall more than 243,000 model year 2009/2010 crossover sport utilities, mainly in the United States, to inspect safety belts for possible damage, Reuters reported.

The automaker and regulators said most of the Chevy Traverse, Buick Enclave, GMC Acadia, and Saturn Outlook vehicles were shipped within the United States. Several thousands others were exported to Canada, Mexico, China, Saudi Arabia and other countries.

GM said potential damage to the second-row safety belts could make it appear as if the latch were properly secured when it was not.

The problem was discovered during warranty returns, and any damage was cosmetic in the vast majority of cases, GM said in documents filed with the National Highway Traffic Safety Administration (NHTSA).

There are no known cases of belts failing in a crash, GM said.

GM said it would begin notifying owners by letter this month to make appointments with dealership service departments for repairs.

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GM’s Stock Offer: Goldman Sachs Undercuts Rivals as it Loses Top Role

NEW YORK – Wall Street banks led by JPMorgan Chase & Co. and Morgan Stanley stand to make a combined $120 million on General Motors Co.’s initial public offering. If it weren’t for Goldman Sachs Group Inc., they could have made four times as much, Bloomberg reported.

In a pitch to the U.S. Treasury in May, Goldman Sachs offered to accept a fee of 0.75 percent, according to people with direct knowledge of the matter. That’s a fraction of the 3 percent banks typically charge on the largest IPOs and well below the 2 percent offered by Bank of America Corp. and other banks that presented to Treasury, said the people, speaking anonymously because the matter is private.

Goldman Sachs, which had just been sued for fraud by federal regulators and has ties to GM competitor Ford Motor Co., didn’t get a top role in the IPO. The government imposed the fee pitched by Goldman Sachs President Gary Cohn and his five-person team on all underwriters, angering the banks, the people said.

“The fact the other banks are furious at Goldman is not surprising,” said Samuel Hayes, a professor emeritus of investment banking at Harvard Business School in Boston. “They feel it gave the government a real lever to force down fees on the underwriters. But the deal still has a lot of marquee value.”

Banks involved in the deal include lead managers JPMorgan and Morgan Stanley, as well as Bank of America and Citigroup Inc., among others. Some banks made different concessions in their pitches to the Treasury. Charlotte, N.C.-based Bank of America and Zurich-based Credit Suisse Group AG offered to use some of their fees to buy GM vehicles or to subsidize employee purchases of GM cars and trucks, according to the people with knowledge of the matter.

Goldman Sachs spokeswoman Andrea Rachman and spokespeople for the other banks declined to comment. Treasury spokesman Mark Paustenbach also declined to comment.

Goldman Sachs will have a role in the offering, as will Credit Suisse, said the people. Five U.S. banks pitched GM and the Treasury on May 19 in Washington, and non-U.S. lenders made presentations in early June. All sent top executives, such as JPMorgan CEO Jamie Dimon and John Mack, chairman of Morgan Stanley.

Treasury officials including Ronald Bloom, chief of the auto task force, and GM executives were concerned that if it became public the government hadn’t picked Goldman Sachs’s low bid, they would face criticism for wasting taxpayer money because of a bias against the firm, the people said. The officials and executives decided, in conjunction with Lazard Ltd., which is advising Treasury, to use the Goldman Sachs bid and impose it on other banks.

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