Tag Archive | "IPO"

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 Reports $2.16 Billion Profit Ahead of Share Sale


General Motors Co. reported third-quarter net income of $2.16 billion, in line with preliminary results given last week, as the largest U.S. automaker prepares for an initial public offering, Bloomberg reported.

Earnings before interest and taxes rose to $2.28 billion from $2.03 billion during the previous three months of the year, the Detroit-based company said. Revenue was $34.1 billion.

CEO Dan Akerson, who took over from Ed Whitacre on Sept. 1, has said GM can make “significant” profit even amid a U.S. auto sales rate that is running about 30 percent slower than before the financial crisis. The automaker, 61 percent owned by the U.S. government, reduced costs through bankruptcy and is selling new cars for higher prices.

“GM’s numbers were as advertised and they were good,” said Joe Phillippi, principal of consulting firm AutoTrends Inc. in Short Hills, N.J. “As they ramp up production — assuming people like their cars — in three to five years, they could be hitting some much bigger numbers.”

GM plans to raise as much as $10.6 billion by selling 365 million shares at $26 to $29 each, according to a Nov. 3 filing with the Securities and Exchange Commission. The company also will offer about $3 billion of preferred shares that later will become common stock. GM has said the offering may price as soon as Nov. 17.

The automaker’s North American operations had profit before interest and taxes of $2.13 billion, a 33 percent increase from the second quarter’s $1.59 billion. GM said production in the region rose 33 percent to 707,000 vehicles, including a 51 percent gain in truck output.

“They’ve grown in emerging markets and they continue to do well in emerging markets, but North America was the anchor that took them into bankruptcy,” Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich., said in a telephone interview. “How North America goes, so goes GM.”

GM is telling prospective investors that it can earn $19 billion before interest and taxes if U.S. vehicle sales return to previous highs of around 17 million a year, said two people familiar with the presentation. U.S. light-vehicle sales peaked at 17.4 million in 2000.

Earnings before interest and taxes at GM’s international operations slipped 3.9 percent from the previous quarter to $646 million. The loss in the automaker’s European operations widened to $559 million before interest and taxes, more than triple the $160 million in the three months ended June 30. GM Europe lost $1.2 billion on an Ebit basis in three quarters this year.

“We know we have much more work to do,” Akerson, 62, said on a conference call. “We still need to fix Europe. We continue to be vigilant in reducing cost in the enterprise, and we have just started doing a better job in marketing our brands to consumers.”

The automaker generated $2.62 billion in cash from operations and said it ended the quarter with $33.5 billion in cash and marketable securities.

GM’s $34.1 billion in third-quarter revenue compares with $25.1 billion in a year-earlier period that was nine days shorter because the company was in bankruptcy.

While earnings before interest and taxes will be positive in the fourth quarter, they will be “significantly lower” than the run rate in the first three quarters of the year, Akerson said on the call.

GM said in its Nov. 3 regulatory filing that Ebit would be lower than prior quarters because it will be building a different mix of vehicles and engineering costs for future models will be higher. GM is introducing the Chevrolet Volt gas-electric car and Chevy Cruze compact during the quarter.

The company and its Chinese joint ventures are on pace to sell 2 million vehicles this year in the world’s largest auto market, GM said last week. GM’s partnerships, which include SAIC Motor Corp. and Wuling Group, earned $1.1 billion of equity income net of tax this year through Sept. 30.

GM will pay $51 million in cash and provide technical services to raise its stake in Wuling to 44 percent, the company said today in an updated filing of its IPO prospectus.

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GM’s Profit Outlook Has Big Pension Gains


NEW YORK — General Motors Co. on Monday pitched its initial public offering to investors, presenting the automaker as a way to buy into a recovery in the U.S. economy and providing new detail of its profit outlook, The Wall Street Journal reported.

GM executives reiterated statements from last week that the company expects to deliver $11 billion to $13 billion in annual pretax profit within the next few years, and produce profit margins of between 7 percent and 8 percent of sales.

But on Monday, under questioning from potential investors at a Manhattan gathering, GM said about $2 billion of the annual profit would come from gains generated by its pension fund, not from auto operations, according to people who attended the event.

In the past, when GM was losing money, it was unable to claim pension-fund gains as income, but is now able to do so, according to people familiar with the situation. The change is related to the “fresh start” accounting rules that were applied to GM’s balance sheet after bankruptcy reorganization.

The fresh-start rules also mean that GM could have greater charges to earnings for depreciation and amortization.

Chief Executive Daniel Akerson and a team of executives, including Vice Chairman Steve Girsky, Chief Financial Officer Chris Liddell and Treasurer Dan Ammann, made presentations before an audience of several hundred major investors at a private dining hall in Manhattan. The gathering was part of the company’s “road show” to promote its IPO.

The investors included representatives from large institutions and small hedge funds. J.P. Morgan Chase Co. Vice Chairman James B. Lee Jr. and Paul Taubman, co-president of institutional securities for Morgan Stanley, attended, these people said. Both brokerage houses are among GM’s lead underwriters.

In the presentation, Liddell said GM doesn’t expect to issue any new debt as part of its strategy to keep the company deleveraged after wiping out billions of dollars in obligations in Chapter 11.

Akerson and other executives declined to speak to the media as they entered the building, and reporters were barred from the roughly hour-long lunch. The company will make similar presentations in Boston and San Francisco as well and hold individual sessions with big investors in other U.S. and European cities.

GM is proposing a share price range for its IPO of between $26 and $29 after a three-way stock split, and is positioning itself as a potentially better investment than Ford Motor Co. because it believes it can earn considerably more.

The company currently plans to price the IPO on Nov. 17 and begin selling shares the next day, people familiar with the plans told the paper.

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GM, in IPO Pitch, Says Profit Could Hit $19B in ‘High Cycle’


DETROIT – General Motors Co., pitching investors on its initial public offering, said earnings before interest and taxes may rise to as much as $19 billion in what it called a “high cycle” for the global automobile industry, Bloomberg reported.

GM, planning to raise as much as $10.6 billion in an IPO, has reduced its hourly labor costs and will be able to produce as much as $16 billion in free cash flow with profit margins as wide as 10 percent, CFO Chris Liddell said.

The old General Motors Corp. restructured in a U.S.-backed bankruptcy last year, allowing the Detroit-based automaker to earn as much as $4.2 billion through three quarters this year. The company aims to pay off all debts and fully fund employee pensions, Liddell said.

“This will give us the type of fortress balance sheet that we believe is appropriate for a company in a high fixed-cost, cyclical industry,” Liddell said in a videotaped presentation on the website retailroadshow.com.

GM estimates it will have slashed hourly labor costs by more than two-thirds by next year, to $5 billion from $16 billion in 2005. Health care-related costs alone for hourly retirees were $4 billion in 2005, Liddell said.

GM still needs to maintain its current cost base and see an economic rebound for those profit projections to come to fruition, said Mary Ann Keller, the consultant and founder of the self-titled firm in Stamford, Connecticut.

“The government set GM up to be very profitable,” Keller said. “But that assumes that the union doesn’t get its concessions back and that car buyers keep buying trucks and SUVs at the level they are now. You need to know what the assumptions are behind those projections. No one should base their valuation of GM on it.”

CEO Dan Akerson said the automaker now has “a bias for action” and is “making and implementing decisions faster than ever.” The company is looking to lower the stake the Treasury Department acquired as part of a $50 billion taxpayer bailout last year to 43 percent from 61 percent.

“We are making great strides in changing the GM culture to one that values speed, simplicity, accountability and action,” Akerson, 62, said in a presentation. The acquisition of General Motors Financial Co., the subprime lender formerly known as AmeriCredit Corp., shows the changing culture, he said.

In a so-called high cycle for global auto sales, GM could post margins as wide as 10 percent and generate free cash flow of as much as $16 billion, Liddell said. In a mid-cycle market, GM would have EBIT as high as $13 billion and free cash flow of as much as $10 billion, he said. Liddell didn’t specify the level of vehicle sales that constitutes a mid or high cycle.

Third-quarter net income was $1.9 billion to $2.1 billion, GM said this week. GM said it will hold a conference call to discuss the results on Nov. 10.

GM plans to build on its position in emerging markets including Brazil, Russia, India and China, Akerson said. The former managing director of private equity firm The Carlyle Group became CEO Sept. 1, succeeding Chairman Ed Whitacre.

Liddell said GM plans to command better pricing to increase profitability and cash flow. GM will use its stronger financial position to develop more models and grow in countries such as Brazil, Russia, India and China, where the company has the top combined market share, he said.

GM has 13 percent of the market in those countries, according to Liddell’s presentation. Volkswagen has an 11 percent share, followed by Toyota Motor Corp. at 4 percent and Ford Motor Co. at 3 percent, the presentation showed. GM also holds the top spot in the North American market, which has the second-highest potential for growth, he said.

“We clearly have the best of both worlds,” Liddell said.

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GM Sees Profit but Warns of Pressure


General Motors Co. said it expects to report $1.9 billion to $2.1 billion in third-quarter profit, on higher truck sales and the stronger U.S. auto market. But it warned that profit in the current quarter will be weaker as it trims production of high-margin models such as pickups and sport-utility vehicles, The Wall Street Journal reported.

The preliminary earnings, issued as GM gears up for an initial public offering of stock later this month, put the company on a path to produce its first annual profit since 2004. GM made $865 million in the first quarter and $1.2 billion in the second.

GM said third-quarter revenue rose about 21 percent to some $34 billion from a year earlier, and pretax profit totaled $2.2 billion to $2.4 billion. By comparison, in the third quarter of 2009, GM suffered a $1.2 billion loss after going through a U.S.-funded restructuring in bankruptcy court.

GM expects to produce fewer trucks in the fourth quarter because it has brought supply in balance with demand. It also is making big expenditures on new-product development and vehicle launches, including the Volt battery car. All this means pretax profit will be “significantly lower” than in the previous three quarters, it said.

“We will deliver a solid and profitable first year post-bankruptcy, and we are continuing to improve our balance sheet and most importantly, the quality of our vehicles,” Chief Financial Officer Chris Liddell said in a statement.

In the third quarter, GM built 313,756 pickups and SUVs, up 43 percent from the same quarter of 2009, when it was restarting its plants after bankruptcy. This year, GM canceled its traditional July summer plant shutdown to meet demand for trucks.

GM will have made about $4 billion so far in 2010, including the third quarter. It’s a dramatic reversal after five straight years of annual losses. GM, however, still falls short of rival Ford Motor Co., which made $6.4 billion in this year’s first nine months.

GM executives will tout the third-quarter earnings when they begin a “road show” this week to pitch the IPO to investors. GM said it will release full third-quarter results Nov. 10.

The auto maker on Wednesday also gave further details of its IPO in a government filing. It confirmed reports that the transaction would reduce GM’s U.S government stake to around 35% from its current 61%, and that the offer will seek to sell $10 billion in common shares and $3 billion in preferred shares.

In the offering, the U.S. Treasury would sell $7 billion of its shares. A United Auto Workers trust, which pays for retiree health care, would sell $2 billion of its shares, while Canada and Ontario would offload around $1 billion of shares.

GM also said Wednesday its October U.S. sales rose 4.2% from a year earlier, a lower increase than many competitors saw.

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GM Execs Will Use Private Charters for IPO Road Show


NEW YORK – General Motors Co. executives will use some charter flights on trips over the next few weeks to meet with prospective investors in the automaker’s upcoming public stock offering, GM said.

GM, Chrysler and Ford Motor Co. sparked public outrage two years ago when executives flew to Washington on chartered jets to ask the federal government for a taxpayer-funded bailout, Reuters reported.

The congressional backlash was so severe that the executives later drove from Detroit for a follow-up hearing in hybrids, a move mocked on “Saturday Night Live.” Ford did not seek a bailout at the time but supported bailouts for its two U.S. competitors to ensure the supply chain would not collapse.

“GM’s corporate travel policy allows charter flights when supported by a business rationale,” GM spokesman Tom Wilkinson told The News York Times. “This is consistent with our requirements under TARP [the federal bailout terms] and our Treasury loan agreement, as our shareholders know.”

The U.S. Treasury Department, which controls the government’s 61 percent GM stake, declined to comment directly on the matter, according to The Times story.

“This is not an issue in which Treasury is in any way involved,” Mark Paustenbach, a Treasury spokesman, told the newspaper.

GM CEO Dan Akerson and several other executives are expected to begin meetings as early as today with potential investors in North America and Europe, according to The Times.

Typically, institutional investors expect face-to-face meetings with the management of companies trying to sell stock. Taking chartered flights ensures the executives will arrive on time for those meetings, also known as “road shows” in the investment world. But given that GM is controlled by taxpayer dollars, the issue has been discussed internally, a source familiar with the matter recently told Reuters.

“It’s fair to say GM is very concerned about appearing extravagant,” said the source. “Even though we always do this, because it’s the only way to really get a road show done properly in an amount of time that minimizes market risk for the seller, this one might be a special case.”

GM on Wednesday finalized terms for the stock offering of about $13 billion to partially repay the taxpayer-funded bailout and reduce the U.S. Treasury to a minority shareholder.

GM’s filing with the U.S. Securities and Exchange Commission was the final step before it begins marketing what is expected to be one of the largest-ever initial public offerings. The investors are expected to span the globe and include sovereign wealth funds.

The automaker plans to sell 365 million common shares at $26 to $29 each, raising about $10 billion at the midpoint, according to the updated IPO papers filed with the SEC.

In addition, GM said it planned to sell about $3 billion of preferred shares that would convert to common shares under mandatory provisions, a less risky form of equity that could attract dividend and growth-fund investors.

The IPO would value GM at just over $41 billion at the midpoint of the price range. Assuming exercise of warrants that are in-the-money, the share count jumps roughly 300 million to 1.8 billion, and GM’s value rises to just under $49 billion.

If everything goes as planned, the offering would be the largest U.S. IPO since Visa Inc.’s $19.7 billion IPO in 2008.

GM’s underwriters could sell an additional 54.75 million common shares and 9 million preferred shares if the IPO attracts robust investor demand, raising another roughly $2 billion and potentially taking the total IPO amount to as much as $15.65 billion, the company said in the amended prospectus.

Once a blue-chip stock, GM is expected to return to the New York Stock Exchange under the “GM” ticker symbol as well as a listing on the Toronto Stock Exchange. GM is expected to price its IPO on Nov. 17 and begin trading on Nov. 18, sources said.

The governments of Canada and Ontario plan to sell down their combined stake to 9.64 percent from 11.67 percent and the UAW’s retiree health care trust fund is expected to reduce its stake to 15.33 percent from 19.93 percent.

GM plans to contribute $4 billion cash and $2 billion of common stock to its pensions after the IPO to address an area of investor concern.

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