Tag Archive | "IPO"

GM’s Sticker: $50 Billion


The United States will cut its ownership stake in General Motors Co. below the symbolically important 50 percent to about 35 percent when the carmaker relists its stock later this month, according to new figures the company plans to disclose Tuesday, but it will be tough for the government to break even on its investment, reported The Wall Street Journal.

The new projections by GM say the company could have a stock-market value at the start of trading of $50 billion—about the same as the solidly profitable Ford Motor Co.—and that it could be as high as $60 billion, said people familiar with the plan.

But for the U.S. to break even through sales of the rest of its stake, the share price may need to rise more than 60% from its initial level, to about $50.

The initial public offering plan envisions the shares would be priced at $26 to $29 each, these people said. The actual price of the stock to be sold in the IPO would be set about Nov. 17, and the sale would take place the following day.

Through the IPO, GM plans to sell 24% of its total shares, or about $10 billion worth, based on the midrange of the share-price estimate.

The shares to be sold are owned by the U.S. Treasury, a union-run trust and Canadian federal and provincial governments, said the people familiar with the plan.

Under the plan, the Treasury would sell $7 billion of its shares, paring its 61 percent stake to about 35 percent—lower than many observers expected. The 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 their shares.

The plan includes a stock split that will triple the number of GM common shares available to 1.5 billion. Outstanding warrants—the right to buy shares— boost the total to 1.8 billion.

Details of the stock offering are expected to be filed with the Securities and Exchange Commission on Tuesday, in advance of a “road show” GM is set to launch Wednesday to promote the IPO to prospective investors.

Some details of the sale were earlier reported by Reuters.

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GM Said to Seek $10.6 Billion in IPO to Help Repay Treasury


General Motors Co. aims to raise as much as $10.6 billion in an initial public offering that will reduce the U.S. and Canadian governments’ stakes in the largest U.S. carmaker, two people familiar with the plan told Bloomberg.

GM, 61 percent owned by the U.S. Treasury Department, will offer 365 million shares at $26 to $29 each, according to the people, who asked not to be identified because the plans are private. The automaker also will offer $2 billion to $3 billion of preferred shares that later will become common stock, said the people.

CEO Dan Akerson is working toward returning the $50 billion GM received in a taxpayer bailout last year. The Treasury, seeking to win higher prices in future offerings, is selling less than the $12 billion to $16 billion that people familiar with the situation said Detroit-based GM and its investment banks had considered earlier.

“This makes sense,” George Magliano, a senior economist for IHS Automotive who is based in New York, said in an interview yesterday. “They need to protect the price of the offering. The IPO was never intended to buy out all of the government and union stakes in one fell swoop. It’s got to be done over time, and you need to get the right price.”

An amended registration statement that contains the number of shares and the price range for the offering will be filed with the Securities and Exchange Commission as soon as today, an election day in the U.S., one of the people said.

For the United States to break even, it needs to sell at an average price, before splits, of $131 a share, a person familiar with the matter told Bloomberg in September.

With a 3-for-1 split, the stock would need to rise to almost $43.67 a share — almost 60 percent more than the midpoint of the planned offering — to reach the breakeven point, said a person familiar with the planning.

The suggested offering price would value GM at three times Ebitda, or earnings before interest, taxes, depreciation and amortization, while Ford Motor Co. trades at five times that measure, said the person. The discount should ensure the offering is over-subscribed and may lead to a jump in the price when trading begins Nov. 18, the person said.

Bonds issued by GM’s bankrupt predecessor dropped. The 8.375 percent bonds due July 2033, which were issued by old General Motors Corp. and convert to shares in the new GM, fell 3.5 cents to 33.5 cents on the dollar at 9:43 a.m. in New York, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

GM’s offering range values the company at about $50 billion to $60 billion, Guy LeBas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC, wrote today in a note.

The U.S. Treasury will likely sell about $7 billion of stock, one of the people said. About $2 billion of shares will be sold by the United Auto Workers retiree health-care trust, and less than $1 billion may be sold by Canada, one of the people said.

The medical trust’s sale would be worth about 25 percent of its stake, while Canada will sell about 20 percent of its shares, one of the people said.

The offering may price on Nov. 17 and the shares would begin trading the following day, the person said. A roadshow in which GM will pitch investors in North America and Europe will begin tomorrow or Nov. 4, the person said.

Noreen Pratscher, a spokeswoman for GM, didn’t respond to a telephone message seeking comment.

“It’s all up to the company” when it files with the SEC and begins its roadshow, said Steven Adamske, a spokesman for the Treasury department.

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Big Moves Ahead for GM


General Motors Co. will take major strides in the coming days in its 16-month march from bankruptcy to the New York Stock Exchange, reported The Detroit News.

Over the next week to 10 days, GM is expected to take three big steps: release third-quarter earnings, set a price range for its initial public stock offering, and embark on a global marketing push to court investors.

GM’s underwriters and the U.S. Treasury Department, which is the company’s majority owner, may announce as early as Monday how many shares the government intends to sell in the IPO, as well as set a starting price range, The Detroit News has learned. A final share price will be set shortly before the company goes public with its stock, which is expected in mid-November.

The United Auto Workers’ health care trust fund, which holds a 17.5 percent stake, also is expected to sell some of its shares, as are the Canadian and Ontario governments, which own 11.7 percent of GM, a source has told The Detroit News.

The automaker also expects to post its third consecutive quarterly profit this week or early next, building upon a $2.2 billion profit in the first half of the year — showing “significant” results, a person briefed on the matter said.

Auto sales are looking up. GM and other automakers report U.S. sales for October on Wednesday with analysts predicting it could hit a seasonally adjusted annual rate of 12 million.

The gradual rebound of the market is good news for GM, which also working to improve its image. Consumer Reports recently moved the automaker up in its reliability rankings and some GM brands have successfully stolen market share away from rivals.

“We are getting reward for it in the market place, not only in terms of popularity but price,” CEO Daniel Akerson told reporters Friday. “We’re very pleased with our position, right now.”

A loss is expected for the Treasury in the initial sale, but the IPO will represent a major step for GM in ending the government’s 61 percent ownership stake in the automaker. If the stock value increases, the government could make money in subsequent sales. In all, the Treasury owns 304 million of GM’s 500 million common shares.

GM officials are barred from speaking publicly about the IPO because of federal regulations, but the company already has laid the ground work for its investor pitch.

Last week, it announced it was paying down $11 billion in debt and pension liabilities, attempting to clean up its balance sheet. The company also has made news through a series of announcements touting new jobs, additions to its vehicle line up and big multimillion investments in its plants.

GM’s stock will trade on the NYSE and the Toronto Stock Exchange, the company said in August.

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Fiat’s Chrysler Said to Seek Bank Loans Before Stock Offering


Chrysler Group LLC, the U.S. automaker run by Fiat SpA, has contacted banks about borrowing money before a possible initial public offering next year, two people familiar with the effort told Bloomberg.

Chrysler owes the U.S. and Canadian governments $7.4 billion and Chief Executive Officer Sergio Marchionne has said interest on that debt has kept the automaker from earning a profit in the first half of this year. Fiat, which he also runs, can’t have a majority stake until Chrysler has repaid the money borrowed as part of last year’s bankruptcy and reorganization.

The third-largest U.S. automaker’s board is looking to refinance U.S. and Canadian government loans as it considers the proper debt level for the company, Marchionne said last week. The company approached banks about valuation and loans in recent months, said the people, who asked not to be identified because the discussions were private.

“What he wants to do clearly is refinance it and take advantage of the extraordinarily low level of interest rates,” Joseph Phillippi, principal of AutoTrends Inc., a consulting firm based in Short Hills, N.J., said in a telephone interview. “Getting the company’s financial footing in a much stronger position is clearly going to benefit him.”

Chrysler, based in Auburn Hills, Mich., has said its effective interest on the money borrowed from the U.S. government is as high as 14 percent and as high as 20 percent on the Canadian loans.

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Ford Stock Rally Could Be Boon to GM IPO


Ford Motor Co.’s emergence as Detroit’s darling may have fueled jealousy at General Motors Co. headquarters, but the archrival’s rising shares could help GM as it readies its landmark return to public markets, Reuters reported.

As GM’s only major U.S.-listed rival, Ford is the company investors and bankers are turning to as they debate the largest U.S. automaker’s theoretical value ahead of the high stakes IPO scheduled for soon after next week’s U.S. mid-term elections.

There are several ways to calculate value for GM, including using a multiple of its projected cash flow based on Ford’s multiples, or doing an implied value calculation based on where GM bonds are trading.

Initially, GM’s IPO — just over a year after the automaker’s bankruptcy — was widely expected to weigh on Ford’s shares, which have appreciated sharply since hitting a record $1.02 low in November 2008 and were trading around $12 when news of GM’s stock float first began to circulate in May.

Ford executives were repeatedly asked to assess the risk that mutual funds and other institutional shareholders might “rebalance” their portfolios, dumping Ford stock and buying GM.

“Just mathematically, a lot of mutual funds and other investment entities will probably spread their investment out over the sector more,” Ford Executive Chairman Bill Ford told reporters in August, two days after GM filed the initial paperwork for its IPO with the U.S. Securities and Exchange Commission.

Whether GM benefits — and Ford suffers — from investors diversifying their autos holdings will not be determined until after GM’s debut in mid-November. But in the meantime, Ford’s share rally and a broad rebound in auto industry stocks across the board are helping GM’s valuation.

Ford, which posted losses totaling $30 billion from 2006 through 2008, has emerged as the strongest of Detroit’s “Big 3” automakers under a turnaround plan led by CEO Alan Mulally.

Its stock hit a six-month high of $14.47 on Tuesday when it impressed investors with a $1.7 billion profit for the third quarter.

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Weighing New GM’s Resale Value


DETROIT — General Motors Co. has made progress tidying up its balance sheet ahead of a planned initial public stock offering next month, but there’s still a big question it has to answer for potential investors: Is GM fixed?

The automaker said it will return another $2.1 billion of the nearly $50 billion in bailout funds it got from U.S. taxpayers, The Wall Street Journal reported. The repayment was one of a series of moves GM, which is majority owned by the federal government, announced to reduce its liabilities and show financial strength ahead of the IPO.

GM said it will repay the money by buying back 83.9 million preferred shares owned by the U.S. Treasury. In a separate move, it said it will immediately pay $2.8 billion to reduce the amount it owes to a trust fund that covers the cost of health care for retired workers.

After the IPO, the auto maker plans to cut its liabilities further by contributing $4 billion in cash and $2 billion in stock to employee pension funds.

All told, the moves will use $10.9 billion, but will save about $500 million a year in interest payments. GM will be left with $24 billion in liquidity, including a backup $5 billion revolving credit line, which company executives believe is enough to keep it moving forward, especially now that it is making money again.

The stock buyback from the Treasury is significant because the Obama administration is seeking to recoup the entire $49.5 billion that taxpayers poured into GM, starting in the final days of the George W. Bush administration. With Thursday’s deal, GM will have returned about $9.5 billion of that money, through loan repayments, interest charges and dividends, the Treasury said.

During a stay in bankruptcy court last year, GM slashed its debt and costs, halved the number of brands it sells and swept out its entrenched leadership in favor of aggressive newcomers.

Bolstered by a new, lower-cost union contract, some strong-selling models and an improving economy, GM reported a $2.2 billion profit for this year’s first half, a sharp turnaround after losing nearly $90 billion between 2005 and its bankruptcy filing in June 2009. GM’s U.S. sales rose 6.8% in the first nine months of 2010.

But, as for whether GM is fixed, the answer is yes—but not completely. Many problems linger.

GM’s U.S. market share slipped 2.8 percentage points this year through September as overall car sales recovered. One reason is the company still doesn’t make enough models that appeal to a broad spectrum of Americans, particularly young, urban drivers and those on both coasts.

GM faces intense competition from a resurgent Ford Motor Co. and newer rivals such as Korea’s Hyundai Motor Co., as well as Toyota Motor Corp., which remains a formidable competitor despite its safety recalls. In Europe, GM has racked up years of losses at its Adam Opel GmbH unit.

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