Tag Archive | "IPO"

GM’s IPO May Raise Record Amount


General Motors Co. said Wednesday that it will increase the size of its initial public offering by about 30 percent to 478 million shares, which could make it the largest global IPO in history.

The move, which came despite broad stock market losses Tuesday, is a response to stronger-than-expected demand for shares in the auto maker, which is generating solid profits after last year’s U.S. government-orchestrated bankruptcy.

Earlier Tuesday, GM confirmed it would raise the expected price for shares sold in its IPO to a range of $32 to $33 from the previous $26 to $29. GM also plans to sell up to $4.6 billion of preferred stock, up from $3 billion previously planned. The IPO will be priced Wednesday after the U.S. stock markets close and the shares will start trading Thursday.

The value of the offering, including the mandatory convertible preferred shares, could reach $22.8 billion, eclipsing the $22.1 billion IPO by Agriculture Bank of China in July 2010, according to Thomson Reuters.

The GM issue would rank No. 5 among the largest stock sales of any nature, according to Dealogic.

If the banks underwriting the sale exercise an overallotment option, the IPO could grow to 550 million shares, bringing the value of the common shares to around $18.2 billion, significantly more than GM and the U.S. government had originally expected.

After the IPO, the U.S. government’s stake in GM would fall to close to 26 percent from the current 61 percent, people familiar with the matter told The Wall Street Journal.

The U.S. will sell 412 million shares, up from 303 million. A union-run retiree trust will sell 102 shares, up from 82 million. Canada’s federal and provincial governments, which aided in GM’s rescue, will stick with plans to sell 35 million shares.

At the new level, the U.S. government would raise around $13 billion, including the overallotment, at the midpoint of the higher price range. That’s up from $8.3 billion at the lower price and share number.

The U.S. spent $49.5 billion to rescue GM last year. The auto maker has returned $9.5 billion; the Obama administration will seek to recoup the rest through the sale of stock over the next couple of years.

The decision to enlarge the offering was made late Tuesday afternoon. The U.S. Treasury, GM and its underwriters felt recent stock market declines wouldn’t deter investors, a person familiar with the discussions said.

Some on Wall Street are concerned that GM and its banks may be overreaching, and that may crimp how much the stock rises in its first day of trading Thursday. Ordinarily, Wall Street banks who mange such offerings don’t mind if a new stock issue rises 25 percent or more on its first day of trading, because the potential for such gains encourages money managers to buy shares. Indeed, the largest U.S. IPO in history, the $19.7 billion sale of stock in credit-card processor Visa Inc., rose 28 percent on its first day of trading in March 2008.

But in the GM IPO, the underwriters are dealing with an unusual client: the U.S. Treasury. The government seeks to maximize how much it raises from the sale as it attempts to be paid back for its bailout.

The underwriters are targeting a first-day price gain of 10 percent to 20 percent, people familiar with their thinking said. If GM shares rise more than 20 percent, taxpayers might view it as a Wall Street giveaway to select investors.

“If they price it too low, they’re messing with the U.S. taxpayer,” said Frank Ingarra, co-manager of the Hennessy Funds, adding that he believes pricing of the shares has become a public-relations issue. “I’d rather go with things that the government isn’t involved in.”

Other big investors voiced the same concern. “I certainly hope that political considerations don’t enter in” which could result in the underwriters setting the price at a level where “it doesn’t do well,” said Linda Killian, a principal of Renaissance Capital LLC in Greenwich, Conn., who manages a $10 million mutual fund specializing in IPOs. Ms. Killian said she hoped to buy shares in the offering.

Some analysts say at the higher current price level, investors have less incentive to buy. Tony Boase, an analyst at FAF Advisors in Minneapolis, a big GM bond holder, says he believed the stock is worth about $37 a share. “It looked at lot better” at the lower price range first proposed, he said.

Despite such concerns, many money managers are eager to get in on the deal. Biondo Investment Advisors asked for 150,000 shares to divvy up between its Biondo Focus and Biondo Growth mutual funds, said Joe Biondo Jr., co-manager of the funds. But “based on the demand for the issue, I doubt we’ll be able to get a lot of it,” he said.

Because most IPOs rise, “for the people involved in the IPO, it’s potentially free money, frankly,” said Dan Genter, chief executive of RNC Genter Capital Management in Los Angeles. But if there’s a big initial gain, he said, “the taxpayers and general public that bailed out GM have some basis for aggravation,” given that the IPO shares appear tough to get, he said.

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GM Raises Sights for IPO


General Motors says it is raising the price range for its initial public offering of common stock to $32 to $33 per share. The new price range is about 14% higher than originally expected, reported The Wall Street Journal.

The share and price expansion are the result of strong investor demand for shares in the U.S. auto maker, which now is generating solid profits after shedding costs under a 2009 bankruptcy reorganization.

The new price range indicates the U.S. government, currently owner of a 61 percent stake in GM, should reap at least $8.6 billion from the IPO, about $1.4 billion more than previously expected. After the offering, the government is expected to be left with about a 35% stake in GM that it expects to sell over time.

Earlier this month, GM said it would issue 365 million shares in the IPO, totaling 24 percent of the company’s stock. In response to strong demand from investors, the banks organizing the IPO are likely to exercise an overallotment 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 U.S. government is weighing whether to increase the number of shares offered by as much as 20%, or another 84 million shares.

GM was given $49.5 billion by the government and so far has paid back $9.5 billion. The government hopes to recoup the remainder of its investment through future sales of its GM stock.

This week, the U.S. 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 would sell at least 71 million. If the number of shares to be sold are 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 percent would push the amount up by another $2.7 billion.

Electronic trading company Getco LLC will be the designated market maker at the New York Stock Exchange for the IPO. A NYSE Euronext spokesman confirmed Getco was selected from among the exchange’s five designated market makers, which are generally responsible for buying and selling shares, smoothing trade imbalances and providing liquidity in return for incentives paid by the exchange.

GM investors will include three or four sovereign-wealth funds that 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., is on track to buy around $500 million in GM shares, pending Chinese government approval, people familiar with the matter have said.

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Ford Reaches Highest in 8 Years Before GM’s IPO


Ford Motor Co. rose to the highest in almost seven years in New York trading as investors’ excitement builds in rival General Motors Co.’s impending public stock offering amid strong U.S. car and truck sales, reported Bloomberg.

Ford gained 70 cents, or 4.3 percent, to $17 at 4:15 p.m. in New York Stock Exchange composite trading, the shares’ highest closing price since Jan. 8, 2004. They have advanced 70 percent this year, including a 39 percent jump since Oct. 1.

GM, which is expected to price its initial public offering this week, is generating investor interest in autos, said Joseph Phillippi, an analyst.

“People are refocusing on the auto industry because of the GM IPO,” said Phillippi, principal of AutoTrends Inc., a consulting firm in Short Hills, New Jersey. “Ford is putting together a real terrific track record. The numbers are going to continue to get better because they have good product momentum.”

Ford earned $6.37 billion in the first nine months of the year, the most since 1998. New models like the Fiesta compact and redesigned Taurus sedan have helped drive Ford’s U.S. sales up 21 percent this year, almost twice the market’s gain of 11 percent.

U.S. retail sales rose 1.2 percent last month, exceeding the highest forecast among economists surveyed by Bloomberg News, according to data from the Commerce Department issued today in Washington. A 5 percent gain among auto dealers led the rise as U.S. light vehicle sales reached a 12.3 million annual selling rate, the highest of the year.

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Rattner: GM’s Speedy Rebound Drives Investor Appetite for ‘Historic IPO’


DETROIT – The turnaround at General Motors Co. has come so far, so fast that the automaker’s initial public offering likely will price at $30 per share or above this week, said Steven Rattner, the former head of the Obama administration’s automotive task force, reported Automotive News.

Analysts had projected that GM’s offering would price at $26 to $29 per share, allowing the U.S. government to sell about one-third of the 61 percent stake it took in the company for a bailout last year of nearly $49 billion.

Speaking here today on the sidelines of an Automotive Press Association event, Rattner said he was hopeful about GM’s prospects when the bailout was made. But the automaker has exceeded expectations with the speed and magnitude of its financial and operational rebound, Rattner said.

“I’m not sure most of us would have imagined that we would be sitting here now on the eve of a historic IPO and having it go on this successfully,” he said.

Rattner said CEO Dan Akerson and, before him, Ed Whitacre have done a good job of reforming GM’s slow-moving, risk-averse culture. He said improved management has been the No. 1 reason for GM’s newfound success.

That GM could post three straight quarters of solid net profitability, even during a recessionary auto sales climate, reflects the comprehensiveness of the turnaround, Rattner said.

Rattner used his luncheon speech to promote his new book, Overhaul – An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry. Rattner was the task force chief from February to July of 2009.

In his book, Rattner criticized congressional leaders who he said knuckled under to pressure from auto dealers to pass legislation requiring a formal appeal process for GM and Chrysler Group to institute planned dealer cuts.

GM ended up with 4,500 dealers when all the cuts were completed last month, or about 900 more dealers than it had intended to keep before congressional intervention.

Rattner said that GM still has too many dealers as a result of that intervention, according to the best opinion of many experts whom the task force consulted.

Dealer groups have argued that cutting dealers has not saved GM anything and has only cost them business by removing stores often for arbitrary reasons.

Rattner said he’s confident that the Detroit 3 can avoid returning to onerous labor agreements next year when their master contracts with the UAW expire.

Rattner said UAW concessions during the auto crisis have eliminated excess job classifications, antiquated work rules and a Jobs Bank that prompted the Detroit 3 to overproduce to keep UAW members working.

He said the Detroit 3 can continue their success, even with some sharing of their profits, if they can prevent a return to old work rules that restricted operating flexibility.

Rattner also said non-executive Chairman Whitacre’s nine-month tenure in the CEO’s role, which Akerson took over in September, shows why the automaker should separate the chairman and CEO roles. Rick Wagoner and Fritz Henderson also served as GM’s CEO in the past two years.

“It’s not a good idea for any company to go through four CEOs in 18 months,” Rattner said. “GM is the poster child of why you should split the jobs.”

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GM IPO Said Likely to Price at High End or Above


General Motors Co. may sell next week’s initial public offering above the forecast price range and exercise an option to increase the size of the IPO amid signs of brisk demand, two people familiar with the deal told Bloomberg.

The reception six GM executives have received from investors on this week’s roadshow to promote the IPO has been strong enough to sell the shares at the high end of the $26 to $29 offering range or above $30, said the people, who asked not to be identified because the information is private. SAIC Motor Corp., GM’s partner in China, will probably be among the buyers, three people familiar with the plans said.

GM will probably exercise its so-called greenshoe or overallotment option, granting underwriters 54.8 million more shares, the people said. That would help the U.S. Treasury Department recoup more of the public’s $49.5 billion investment in the Detroit-based automaker. Strong demand for the IPO may also help secure higher prices when the U.S. sells the rest of its shares in later offerings.

Noreen Pratscher, a GM spokeswoman, declined to comment.

The offering of 365 million shares, or 24 percent of the automaker’s stock, is already multiple times oversubscribed, one of the people said. Banks arranging the sale will continue to take orders until the roadshow ends next week, to avoid the perception that any potential investors were crowded out, the person said. GM is scheduled to price the IPO on Nov. 17.

The automaker is getting orders from large institutional investors who are likely to be long-term shareholders at about $32 a share, one of the people said. About 15 percent to 20 percent of the offering will be allocated to individuals, the person said.

GM’s stockholders may sell about $2 billion in shares to sovereign wealth funds in the Middle East and Asia in allotments of about $500 million, the person said.

Joe Phillippi, a principal of consulting firm AutoTrends Inc. in Short Hills, New Jersey, said the fact that the IPO was being sold to institutional investors was a good sign for taxpayers because it means GM is finding eager buyers without having to aggressively market the stock to individuals.

“They only stuff the stock into retail when the deal is going bad,” Phillippi said.

Large institutions are likely to hold the stock longer than hedge funds or individuals, meaning that they won’t sell quickly and put downward pressure on the shares, he said.

The offering comes 16 months after GM emerged from a U.S.- backed bankruptcy. The company reported third-quarter net income of $2.16 billion this week, bringing the automaker’s earnings this year to $4.77 billion. That tops the $4.46 billion profit by Toyota City, Japan-based Toyota Motor Corp., according to data compiled by Bloomberg.

The Standard & Poor’s 500 Index has climbed to a two-year high this month amid signs that the U.S. economy won’t slip back into a recession after the longest contraction since the Great Depression.

“They left enough money on the table that money managers think there is some real upside,” Phillippi said. “GM had a good third quarter.”

Without exercising the greenshoe, the Treasury Department’s stake would fall to 43 percent from 61 percent now, according to a regulatory filing with the Securities and Exchange Commission. If the overallotment option is used, the stake would drop to 41 percent, according to the filing.

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GM IPO Should Be Delayed to Maximize U.S. Return, Nader Says


President Barack Obama should suspend General Motors Co.’s initial public offering to ensure the best return for U.S. taxpayers, Ralph Nader and three other consumer advocates said in a letter, Bloomberg reported.

GM is seeking to raise as much as $10.6 billion in the sale of shares, according to a Nov. 3 regulatory filing. The IPO, which may occur as early as Nov. 17, would reduce the Treasury Department’s investment in the Detroit-based company to 43 percent from 61 percent, according to the filing.

“The government obviously has a serious fiduciary duty to taxpayers to obtain the best possible return on our investment in GM,” Nader wrote today in the letter to the Obama administration. The letter was also signed by Joan Claybrook, president emeritus of Public Citizen; Clarence Ditlow, executive director of the Center for Auto Safety; and Public Citizen President Robert Weissman.

The government may lose $4.9 billion in the share sale, they said, citing press reports. The Treasury will seek to recoup taxpayer losses in future offerings at higher prices.

Investor prudence “counsels for maintaining the government’s current share and delaying a sell off so that the government can capture likely improved returns in the future,” they said.

They also pointed to the need to protect jobs and prop up the U.S. economy by influencing GM investment decisions. They cited reports that foreign manufacturers and sovereign wealth funds are considering purchases of GM shares.

The U.S. stake in GM could be used to promote policy changes to deal with climate change, through backing dramatically increased investments in electric cars “and other transformational technologies,” they said.

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