General Motors' public offering may net $20 billion
Thursday, November 18, 2010; 9:13 PM
Seventeen months after veering into bankruptcy, General Motors has become the unlikely darling of Wall Street, poised to complete an initial public offering Thursday that will fetch more than $20 billion and rank as one of the largest in history.
Stripped of laggard brands, costly health-care benefits and bulging debt, the shiny new GM has attracted investors that range from former employees to Chinese auto giant SAIC to big pension funds that only recently lost money on the old GM.
The GM offering has become a referendum not only on the company but also on the economy. Despite jitters over the past week about the Federal Reserve's monetary policy, Ireland's debt crisis and weak demand for goods, many investors said they are confident that American car sales will continue to pick up and that GM will benefit. As GM's onetime chief executive said in the 1950s, "what was good for General Motors was good for the country - and vice versa."
"For an IPO of this size and complexity to be so successful, it means investors are broadly confident about the restructuring of GM, the state of the auto industry and to some extent about the state of the economy," said Steven Rattner, who led the Obama administration's effort to overhaul the auto industry. "People do not buy shares in recently bankrupt auto companies unless they are confident about the future."
Faced with broad enthusiasm, GM this week boosted its offering price and size beyond initial expectations. The carmaker said Wednesday that it priced its shares of common stock at $33 each, raising $15.8 billion. Including preferred shares, the company has raised at least $20.1 billion. If, as expected, the offering's underwriters exercise an option to buy additional shares themselves at the offering price, the total could reach $23 billion. That would be a sign of optimism about GM's first day of trading.
The federal government seized the opportunity to recoup part of the bailout money it injected into the company in the spring of 2009. The Treasury agreed to sell at least $11.8 billion worth of stock, lowering its 61 percent stake in what has been disparagingly dubbed "Government Motors" to just under 37 percent, a senior administration official said. If underwriters take their over allotments, the Treasury will earn $13.6 billion and its stake will shrink to 33.3 percent.
The sale of the government's shares is a highly political decision. Some critics think the government erred by nationalizing the company, while others say taxpayers might have been better served if the government had sold off its stake more gradually. A senior administration official said the Treasury has agreed to "lock up" its remaining shares and not sell them for at least six months.
GM's union leaders have also agreed to sell shares in the offering, cashing in on stock that was given to their pension plans under last year's restructuring accord.
"The fact that we could have this gigantic IPO from GM now demonstrates how much things have improved in the financial markets since . . . the dark days of a couple of years ago," said Edward Yardeni, a leading investment strategist and the president of Yardeni Research.
The only U.S. initial offering to rival this one's size was Visa's $19 billion offering in March 2008. Earlier this year, the Agricultural Bank of China raised $22.1 billion and American International Assurance Group in Hong Kong raised $20.5 billion in initial public offerings.
Amid the enthusiasm, some auto industry experts expressed concern.
Maryann N. Keller, an independent auto industry analyst, said the success of GM's offering was built "on the backs of" American taxpayers and the creditors who lost money in the bankruptcy settlement. She added that "there is no proof at this point that GM can function as a more nimble auto company."