Tag Archive | "IPO"

Ally Said to Plan Share Sale For Late Second Quarter


Ally Financial Inc., the automobile and home lender majority owned by the U.S. government, plans to sell shares to the public late in the second quarter, according to two people with direct knowledge of the matter.

The initial public offering may come as soon as late May said one of the people, who declined to be identified because the IPO’s timing isn’t public. Last week, Ally chose Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. to underwrite the sale, according to a person with direct knowledge of the matter, reported Bloomberg.

Chief Executive Officer Michael Carpenter, 63, is setting the stage for the government to begin exiting its 74 percent stake. The U.S. Treasury Department made the investment as it provided Ally with three rounds of aid totaling $17.2 billion.

Investors’ demand for the stock may be high because the business is profitable and strong used-car prices are reducing the risk of losses on repossessed cars, said Maryann Keller, founder of a self-named consulting firm.

“Investing in a large auto lender is a no-brainer,” said Keller, whose firm is based in Stamford, Connecticut. “This recession proved that people pay their car loans before they pay their mortgage. But they will have to explain how they will grow and what their relationship with GM is going to be.”

Ally was formerly known as GMAC Financial Services and served as the captive lending arm of General Motors Co.’s predecessor. The lender returned to profitability last year with $1.08 billion in net income after five straight quarterly losses and a $10.3 billion deficit in 2009.

Ally made more new-car loans than any other lender last year, according to Experian Automotive, a Costa Mesa, California-based firm that tracks auto-lending data. The company originated $23 billion in new-car loans last year, a 60 percent increase from 2009.

GM sold 51 percent of GMAC to Cerberus Capital Management in 2006 to raise cash. The Treasury Department first provided capital to GMAC in 2008 as the lender’s ResCap mortgage arm posted $9.1 billion in losses in two years.

The Treasury made its third capital infusion in December 2009, capping a total aid package of $17.2 billion. Cerberus’s stake is now 7.8 percent, while GM owns 4 percent directly and an additional 5.9 percent in a trust. Other investors own 8.5 percent, according to Ally’s website.

Under the Treasury’s ownership, Ally has returned to health and has been increasing its business with GM and Chrysler Group LLC. Ally financed 38 percent of GM’s new-car loans last year, up from 28 percent in 2009. Its share of Chrysler’s new-car loans grew to 45 percent last year from 9 percent in 2009.

Ally’s mortgage unit made $663 million last year after losing $6.3 billion in 2009.

One of Ally’s challenges will be telling investors how it will compete with GM’s financing efforts following its October acquisition of subprime lender AmeriCredit Corp., Keller said.

“Once GM bought AmeriCredit, they made it clear that their dealers would be doing less business with Ally,” Keller said. “That’s the question that Ally has to answer in an IPO.”

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Fiat Raises Chrysler Stake, Readies for IPO


DETROIT – Fiat lifted its stake in Chrysler to 25 percent today as CEO Sergio Marchionne prepares for an upcoming round of meetings with bankers to refinance Chrysler’s debt and to ready an initial public offering of shares.

Fiat said in a statement that it had raised its ownership in Chrysler to 25 percent from 20 percent at no financial cost under the terms of a deal that had been negotiated with the U.S. Treasury as part of Chrysler’s bailout, reported Automotive News.

The announcement, which came as Chrysler showed off new and revamped vehicles at the Detroit auto show, increases the likelihood that Fiat will own a majority of Chrysler by the end of the year.

Marchionne said he and other Chrysler executives would begin more intensive meetings with Wall Street bankers in the current quarter to prepare for an IPO expected by the end of the year.

Refinancing a priority

The immediate priority will be to develop a plan to refinance Chrysler’s bailout debt to the U.S. Treasury, Marchionne said.

“We have spent some time with the financial institutions the last two or three months and we are going to get into a much deeper discussion in the first quarter of 2011 as to how to get that done,” Marchionne told Reuters Insider.

“I am expecting that by the second quarter of this year we will have a plan that we can announce,” he said, speaking on the sidelines of the Detroit auto show.

Marchionne said it was possible that a Chrysler IPO could come before the fourth quarter, but that would depend in part on the strength of the stock market. “I think we need to do some more work before we open our trap,” he said.

Marchionne said he hoped that Fiat’s progress in restructuring Chrysler since it took control of the automaker in 2009 would silence the skeptics and win over potential investors and creditors.

Chrysler used the Detroit auto show — the industry’s largest trade show — to showcase a redesigned and re-engineered version of its 300 sedan as well as a revamped mid-size sedan now known as the 200 and a refreshed version of its minivan.

“I think we’ve proved over the last 19 months what this group can do. A lot of people were incredibly skeptical about our ability to launch all of these products within a short period of time,” Marchionne said.

Winning approval

Fiat was given management control of Chrysler and an initial 20 percent stake with the opportunity to raise its holdings to 35 percent by meeting certain performance targets set by the Obama administration.

By winning approval to build a Fiat-designed, fuel-efficient engine at a Chrysler plant in Dundee, Mich., the Italian automaker was cleared to raise its stake in Chrysler to 25 percent.

If Fiat helps Chrysler increase sales outside North America and builds a vehicle in the United States that achieves 40 miles-per-gallon in fuel efficiency, the Italian automaker can raise its stake in Chrysler to 35 percent.

Fiat recently spun off its truck and tractor division now known as Fiat Industrial. That spin-off was seen as clearing the way for the creation of a bigger trans-Atlantic auto group led by Marchionne.

Chrysler executives said they hope the second-generation 300, which had been developed in part before the automaker’s bankruptcy, would win back luxury consumers who would not have considered its vehicles in recent years.

The first-generation 300 was a smash debut for Chrysler five years ago but the automaker was criticized for not investing enough in refinements to keep it competitive with newer full-size sedans from rivals like the Taurus from Ford Motor Co.

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Ally IPO to Come Sooner Than Officials Expected, Geithner Says


Ally Financial Inc., the auto lender formerly known as GMAC Inc., will sell shares to the public sooner than government officials expected, U.S. Treasury Secretary Timothy Geithner said.

“We’re working very hard with the management and board of GMAC to achieve that outcome,” Geithner said today, referring to an initial public offering, in testimony to the Congressional Oversight Panel for the Troubled Asset Relief Program in Washington. “I don’t know how quickly but it’s going to be much sooner than we thought six months ago.”

An IPO would allow the government to begin withdrawing its support of Ally as officials look to exit bailouts undertaken during the financial crisis, Bloomberg reported. General Motors Co. said today it paid $2.1 billion to repurchase preferred shares owned by taxpayers.

“We are going to move as quickly as we can to replace the government’s investments with private capital, take those firms public, figure out a way to exit as quickly as we can,” Geithner said today.

Ally, the primary lender to dealers at GM as well as Chrysler Group LLC, has benefited from three bailouts totaling $17.2 billion. Michael Carpenter, chief executive officer of Detroit-based Ally, has said an IPO could happen as early as next year.

Ally’s Profits

Ally has posted three straight quarters of profit including a $269 million gain for the third quarter as consumers and dealers borrowed more for car and truck purchases. The company has also shown an ability to sell debt with declining interest rates this year, improving its access to funding sources, said Kirk Ludtke, a senior vice president at the Stamford, Connecticut-based brokerage firm CRT Capital Group LLC.

“Ally has performed well and the capital markets have mended themselves probably faster than the Treasury expected,” Ludtke said today in an interview. “They’ve demonstrated that they can access the capital markets in size and at attractive borrowing rates.”

Ally sold $2 billion of notes at 8.3 percent in February, Bloomberg data show. It then sold blocks of debt at rates of 8 percent and 7.5 percent before completing a $1 billion sale at 6.25 percent last month. During the same period, yields on high- yield bonds dropped 1.21 percentage points, according Bank of America Merrill Lynch’s High Yield Master II index.

Ally was the in-house finance arm of GM before the automaker sold a 51 percent stake to an investor group led by Cerberus Capital Management LP in 2006 for $7.4 billion.

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Old GM’s Creditors Make $5 Billion in Stock Offering, Are Entitled to More


Creditors of General Motors Co.’s bankrupt predecessor, who made about $5 billion in the automaker’s $20 billion initial public offering, might be able to buy millions more new shares for as little as a third of yesterday’s price, reported Bloomberg.

GM’s bankrupt estate was issued 150 million shares, or 10 percent of the new company’s stock, to help pay creditors claiming an estimated $37 billion. At yesterday’s closing price of $34.19, that stock is worth about $5.1 billion.

So-called Old GM has warrants that entitle it to buy about 273 million shares at between $10 and about $18 each, according to the company’s Nov. 17 filing with the U.S. Securities and Exchange Commission. If the shares rise, creditors stand to make even more.

“The stock was certainly worth more than almost anyone thought at the time,” said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville, Kentucky.

Old GM filed for bankruptcy in June 2009. New GM’s Chevrolet Volt was just named Motor Trend Magazine’s 2011 Car of the Year.

GM fell 34 cents to $33.86 at 11.33 a.m. in New York Stock Exchange composite trading. It rose as high as $35.99 before closing yesterday at 3.6 percent above the initial offering price.

Motors Liquidation

Over-the-counter shares of Old GM, known as Motors Liquidation Co., rose 7.3 percent to almost 19 cents. Kirk Ludtke, a senior vice president at the Stamford, Connecticut- based brokerage firm CRT Capital Group LLC, said he values the new GM at $45 a share.

Old GM is still counting up creditor claims, which stood at $35.7 billion on Sept. 30, according to its last monthly report. If unsecured claims are certified at $37 billion, as the new GM said it expects in IPO documents this month, the estate would get at least 10 million new GM shares.

If claims against old GM reach as high as $42 billion, creditors could get as many as 30 million new shares, according to the IPO documents.

“Without the bankruptcy there would be a high probability that GM as we knew it would have been disassembled, dismembered, and you wouldn’t have this American icon still in existence,” said Harvey Miller, a lawyer with New York-based Weil Gotshal & Manges LLP who helped GM with its bankruptcy.

Bonds Fall

Old GM creditors’ stake in the new automaker is dwarfed by that of the U.S. Treasury, which bailed it out with $50 billion, and got 61 percent, and the United Auto Workers retiree health- care trust, which has 20 percent.

Old GM’s 8.375 percent bonds due in July 2033 fell for the fourth day and were at 31.75 cents on the dollar, off 1.25 cents at 12.07 p.m. today in New York, according to Trace, the Financial Industry Regulatory Authority’s bond-pricing service.

“The big issue that will be debated for a long time is whether the value being raised in the IPO is really value that should have been part of the estate for old creditors,” said Michael P. Richman, chairman of Patton Boggs LLP’s restructuring practice, who represented bondholders challenging the government’s plan for GM in June 2009.

Cadillac, Chevrolet

When old GM filed for bankruptcy, it sold its best assets, including its Cadillac and Chevrolet divisions, to a new company. Unwanted properties, such as outmoded factories and its Saturn division, were left under bankruptcy-court protection and are to be liquidated under a plan that repays loans from the U.S. Treasury and Canada.

An ad hoc committee of GM bondholders that held about 54 percent of the carmaker’s $27 billion in bond debt agreed to support a plan that swapped debt for equity. A committee that called itself the “Unofficial Committee of Family & Dissident GM Bondholders,” and included three individuals holding $2.3 million in bonds, had objected to GM’s sale of its good assets to a Treasury-funded entity. They were denied court permission to form a committee in the bankruptcy case.

“Its great that all this money’s being raised, it’s too bad people who held $27 billion of bonds, many of whom were retirees of GM, couldn’t participate,” said Thomas Lauria, a White & Case LLP lawyer who represented dissident creditors in the bankruptcy of Chrysler.

Shot in Arm

While the IPO revenue is a shot in the arm for creditors of old GM, which was renamed Motors Liquidation Co., the amount of yet unrecognized environmental and other claims may dilute ultimate recoveries.

A proposed plan to distribute the bankrupt estate’s assets was provisionally approved by U.S. Bankruptcy Judge Robert Gerber in New York on Oct. 21.

A proposed GM environmental settlement would set aside $773 million to resolve claims by the federal government and 14 states. A mix of cash and assets, put into trusts, would cover cleanup at 89 properties, with more than half the money going to New York and Michigan.

The U.S. didn’t give a total estimate of what it claimed GM should owe for cleanup costs, and the Environmental Protection Agency makes claims based on potential liabilities that are often shared among multiple “potentially responsible parties.” Two units of the defunct carmaker formed to hold environmental liabilities owed about $1.2 billion in cleanup costs, according to court documents.

GM’s estate estimated it has $648 million in asbestos liability. A committee of creditors said in court filings that the amount may be five to 10 times that much. Creditors are seeking court permission to investigate General Motors and other non-bankrupt companies in order to estimate their potential asbestos claim.

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General Motors Gains in NYSE Return After IPO Raises $20 Billion


General Motors Co., which went bankrupt last year after almost a century on the New York Stock Exchange, advanced in its return to public trading following an initial public offering that raised more than $20 billion.

GM gained 3.6 percent to $34.19 today, after climbing 9.1 percent in the first hour of trading. Its owners, including the Treasury, sold $15.8 billion of common shares at $33 each in the second-largest U.S. IPO on record. The automaker’s $4.35 billion offering of preferred shares and an overallotment option may boost the total to $23.1 billion, more than the $22.1 billion raised by Beijing-based Agricultural Bank of China Ltd. in the biggest IPO of common stock in history.

The offering by GM came 16 months after it emerged from bankruptcy and brings Chief Executive Officer Dan Akerson closer to his goal of returning the $49.5 billion the automaker received in a taxpayer bailout last year. The Treasury, which will get as much as $13.6 billion from the IPO, will have to sell its remaining GM shares at an average of about $53 each to make back its total investment, Bloomberg data show.

“You want to have some improvement, because that shows there was strong demand for the shares,” said Peter Jankovskis, who helps manage $2.2 billion as co-chief investment officer at Oakbrook Investments LLC in Lisle, Illinois. “But the bigger that jump, it’s really a sign that the offering left some money on the table. That’s a very large deal in dollar terms.”

More than 458 million GM shares changed hands in the automaker’s first day of trading, more than any other U.S. IPO since at least 1994, data compiled by Bloomberg show.

GM, Lehman

GM, whose predecessor was listed on the NYSE on Dec. 20, 1916, according to the exchange’s website, started trading today under the ticker GM. The Detroit-based automaker was listed on the Toronto Stock Exchange under the ticker GMM.

General Motors Corp. filed for Chapter 11 bankruptcy protection on June 1, 2009, after the failure of New York-based Lehman Brothers Holdings Inc. in September 2008 froze credit markets and helped cause the longest recession since the Great Depression.

GM’s owners sold 478 million shares of common stock yesterday for $33 each, trailing behind only San Francisco-based Visa Inc.’s record $19.7 billion U.S. IPO in March 2008, according to data compiled by Bloomberg.

The Treasury needed to sell all of the GM shares it held at an average price of $43.67 to break even on its investment. That would require its remaining 500 million shares to be sold at $53.07 each, data compiled by Bloomberg show.

Treasury’s Stake

“We will only get our money back if we are very patient and if GM performs very well,” said Joe Phillippi, principal of consulting firm AutoTrends Inc. in Short Hills, New Jersey. “GM will really have to hit the ball out of the park in the next couple of years.”

The Treasury offered about 358.5 million shares in the IPO, 95 million more shares than initially planned, and the United Auto Workers’ retiree health-care trust sold 89 million, according to GM’s regulatory filings. The U.S. government may sell an additional 53.8 million shares in the overallotment option, while the UAW trust may offer 13.35 million more.

Overall, the $15.8 billion sale of common shares raised almost 50 percent more than the $10.6 billion that GM initially sought, data compiled by Bloomberg show.

“It’s more of an art than a science in trying to find a sweet spot between supply and demand,” GM’s Akerson said today in an interview on Bloomberg Television. “We have a very high- quality shareholder base. That is all very positive.”

‘Important Step’

The IPO would lower the Treasury’s stake to 37 percent, or 33 percent with the overallotment option, from 61 percent, the filings showed. The UAW trust’s holdings would drop to 14 percent, or 13 percent with the option, from 20 percent.

GM’s IPO “is an important step in the turnaround of the company and for our work to recover taxpayer dollars and exit this investment as soon as practicable,” Treasury Secretary Timothy F. Geithner said in a statement. “It is now widely recognized that the taxpayers’ investment not only helped save jobs during the worst economic crisis in a generation but also gave the auto industry a solid foundation on which to build.”

While the Treasury increased the number of shares it had originally planned to sell, Canada and Ontario left their portion of the offering unchanged. Canada will recover more of its investment in the bailout than if it sold more shares in the IPO if GM shares rise. GM boosted its offering price to as much as $33 on Nov. 16, from $26 to $29.

Relative Value

Canada and Ontario contributed a combined $10.6 billion to the GM bailout, of which $1.1 billion has been repaid. The two were selling 30.4 million shares in the IPO to decrease their stake to as low as 9.3 percent.

At $33 a share, GM was valued at 7.8 times this year’s earnings, based on its net income in the first nine months of 2010. Dearborn, Michigan-based Ford Motor Co. also trades at 7.8 times analysts’ estimates for 2010 profit, the data show. Ford has been the world’s most profitable automaker this year through September.

GM, which lost $82 billion from 2005 to 2008, was valued at an average of 10.3 times profit from 2000 through 2004, monthly data compiled by Bloomberg show. Ford traded at an average of 13 times earnings in the same period.

GM reported third-quarter net income of $2.16 billion last week, bringing its earnings this year to $4.77 billion. While the company will have positive earnings before interest and taxes in the fourth quarter, they will be “significantly lower” than the first three quarters of the year, Akerson said on a Nov. 10 conference call.

‘Underappreciated Story’

The automaker sold shares after the Standard & Poor’s 500 Index rose to a two-year high this month on speculation the U.S. economy won’t slip back into a recession. The benchmark gauge for U.S. equity rallied 1.5 percent today after snapping its longest losing streak since August yesterday.

“GM is an underappreciated story,” said Dan Veru, co- chief investment officer at Palisade Capital Management LLC in Fort Lee, New Jersey, which oversees $3.1 billion. “The stock is going to work its way into the mid-$40s.”

Shanghai-based SAIC Motor Corp., GM’s partner in China, bought a 0.97 percent stake in GM for $500 million, the Chinese automaker said in a statement today. The Kuwait Investment Authority may acquire a stake of 1 percent or less, a person familiar with the deal said this week.

The Dealmakers

Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. led the IPO that included 35 underwriters, which shared $118.3 million in fees for the sale of common shares, according to a GM filing with the Securities and Exchange Commission. Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc. and Royal Bank of Canada were also listed in the prospectus.

“GM spread a lot of love across the market,” said Frederic Dickson, the Lake Oswego, Oregon-based chief investment strategist at D.A. Davidson & Co., which oversees $28 billion. “It was in everybody’s best interest to have it be a successful deal, but not too successful. It appeared to accomplish that.”

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G.M. Shares Surge on Market Debut


Shares of General Motors opened for trading on Thursday and quickly surged more than 7 percent on the New York Stock Exchange, reported The New York Times.

The shares were priced at $33 each on Wednesday evening in the largest initial public offering in United States history. They opened at $35, and in late morning they were trading at $35.38.

The offering, which raised $23.1 billion, is bigger and more ambitious than had once seemed possible. But the recently bankrupt automaker will have to build on its revival for the government to recoup its entire $50 billion investment and validate the Obama administration’s decision to keep G.M. from collapsing.

To break even, the Treasury Department will need to sell its remaining 500 million shares at an average price of $53 each in the months and years to come. And while the administration may retain great influence over the company, it may not be able to keep stoking the enthusiasm investors have shown for G.M. stock in recent days.

Still, now that General Motors has shown that it can be profitable, a complete exit by the government could happen even within the next two years. With the offering, G.M. is shedding its ties to the government faster than expected, cutting the Treasury Department’s ownership stake to 26 percent, from nearly 61 percent.

The offering, President Obama said on Wednesday, continues “our disciplined commitment to exit this investment while protecting the American taxpayer.”

The administration had argued that saving G.M. was not just about one company, but about an entire web of businesses connected to its fortunes. On Wednesday, the nonprofit Center for Automotive Research released a study saying that government aid to G.M. and Chrysler saved more than 1.1 million jobs in 2009 and 314,000 jobs this year — the highest figure yet reported.

Indeed, 17 months after G.M. entered bankruptcy protection, there has been a broader revival in the American car industry. People involved in the offering process, which was intended to be private, credited recent gains in Ford Motor’s share price as a boon to their own efforts. Largely seen as bloated and incapable of competing with nimbler foreign competitors as recently as last year, automakers like G.M. and Ford have turned around their operations by wringing greater efficiency and lower costs out of their work forces and operations.

Investor demand during the company’s two-week global roadshow to promote the offering had proved so strong that administration officials and another major stakeholder, the United Automobile Workers union, elected to sell significantly more shares than planned. G.M. has raised $18.1 billion from selling common shares and $5 billion from preferred shares.

The stock sale follows months of sometimes tough discussions between the company and the Treasury Department, led by officials like the former investment banker Ron Bloom, over how much stock to sell and at what price. For G.M., it has long been an important goal to rid itself of the “Government Motors” moniker it insists is hurting car sales.

For the government, more complicated demands are in play. Its bailout of the automaker was premised not on making money, but on preserving jobs. Still, it is under pressure to minimize losses — or even to eke out a profit — by selling its shares at high enough prices. The government has already recovered more than $7.4 billion from G.M., including interest and dividends.

Senior administration officials said on Wednesday evening that they had worked closely with G.M. and its underwriters in settling on the $33 price. The Treasury Department must now wait six months before it can sell more shares. People with direct knowledge of the matter, who were not authorized to discuss it, estimated that the government would make another significant sale of its holdings next year.

There are reasons for both company and government officials to be confident. G.M., freed from much of its debt and overhead costs, became profitable this year and has earned $4.2 billion through the first three quarters. And although it jettisoned four of its eight brands in bankruptcy, the company managed to stabilize its United States market share at 19 percent and continue to invest in new vehicles.

“Many of the critics believed it would never come out at all or it would come out wounded,” one senior administration official said on a conference call on Wednesday evening.

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