GM readies IPO filing, in auto loan talks: sources
NEW YORK/FRANKFURT (Reuters) - General Motors Co GM.UL plans to file plans as soon as next week for a public offering of stock that could raise up to $20 billion in one of the largest U.S. IPOs ever, a person with knowledge of the preparations said on Wednesday.
In addition, GM is in talks with JPMorgan Chase (JPM.N) and Wells Fargo (WFC.N) on deals aimed at providing improved access to consumers for auto loans at its U.S. dealerships, two people with knowledge of those talks said.
The sources were not authorized to discuss the still-confidential negotiations and asked not to be named.
The moves come as GM prepares to host financial analysts and potential investors for an event on Tuesday at its Detroit headquarters where Chief Executive Ed Whitacre and other senior executives will present a first-of-its kind update on the automaker's progress in its turnaround.
A successful GM IPO would represent an important political win for the Obama administration which engineered bailouts for both GM and its smaller rival Chrysler in 2009 in the face of Republican criticism and public opposition.
In addition, a stock listing could allow GM -- majority owned by the U.S. Treasury -- to start to rebuild consumer confidence in brands tarnished by years of quality missteps and criticism that it became "Government Motors," analysts say.
"We will launch an IPO when the markets are right and when we are ready," said GM spokeswoman Renee Rashid-Merem.
GM declined to elaborate.
But initial contact with investors has given GM some confidence that it could raise $15 billion to $20 billion with its IPO, a person involved in the preparations said.
That would be at the higher end of the $10 billion to $20 billion range first projected by bankers for a stock listing expected just over a year after GM emerged from a government-sponsored bankruptcy that wiped out equity investors.
An IPO of up to $20 billion could value the entire company at between $80 billion to $90 billion, according to one of those with knowledge of the early-stage work ahead of a filing with U.S. securities regulators set for July.
A GM IPO is widely expected to be the largest U.S. stock offering since Visa Inc's (V.N) $19.7 billion IPO in March 2008, according to Thomson Reuters data.
The projected valuation for GM would top the peak of its market value near $60 billion in 2000 and could deliver a paper profit for U.S. taxpayers on their $50 billion bailout of GM.
By comparison, Toyota Motor Corp (7203.T), the world's largest automaker, has a market value of about $120 billion. Ford Motor Co (F.N) has a capitalization of $38 billion.
Whitacre, a former AT&T CEO who was appointed by the Obama administration to turn GM around, has said he favors an IPO as early as this year.
Key aspects of the emerging deal are unusual. First, GM has only a single quarter of profit to show as evidence of its turnaround. The automaker posted a $865 million profit in the first quarter. It lost $88 billion from 2005 through the first quarter of 2009.
In addition, JPMorgan and Morgan Stanley (MS.N) have agreed to unusually small fees in exchange for serving as lead underwriters for the GM IPO, sources have said.
The underwriting banks have agreed to take just 0.75 percentage point of the deal in fees because of the U.S. Treasury's involvement, sources have said. That is far less than the 3 to 3.5 percentage points that would be typical.
The U.S. Treasury provided $50 billion of bankruptcy and bailout financing to GM last year. That rescue included $43 billion of cash and nearly $7 billion of direct loans.
GM repaid the $7 billion loan in April, and the rest of the U.S. investment represents an equity stake the government can start selling after GM launches an IPO.
The U.S. Treasury holds a 60.8 percent stake in the common stock of GM, Export Development Canada 11.7 percent, the United Auto Workers healthcare trust 17.5 percent and old GM, now known as Motors Liquidation, holds 10 percent.
The Treasury said earlier this month that a GM IPO would include the sale of shares by the U.S. government and other shareholders. The allocation of those shares to be sold has yet to be determined.
Treasury spokesman Mark Paustenbach declined comment.
AUTO FINANCING TALKS
Some GM dealers have complained of difficulty securing loans for subprime customers and in financing vehicle leases after GM sold control of Ally Financial Inc, formerly known as GMAC LLC. The sale made GM the only major automaker in the U.S. market without a captive finance company.
Dealers have identified the lack of financing as a potential barrier to GM winning back U.S. market share, now near 19 percent, the sources said. GM's market share exceeded 48 percent of the U.S. market in 1960 and was around 35 percent in 1990.
Negotiations with JPMorgan and Wells Fargo are intended to broaden the availability of auto financing -- particularly to subprime borrowers and for leases. Such a move would remove a potential investor concern around GM ahead of the IPO, according to the sources.
JPMorgan and Wells Fargo could not be immediately reached for comment.
GM said it was "developing relationships" with banks other than Ally "for specialized financing needs, such as leasing and subprime financing."
"Access to financing is an important part of the vehicle sales process," GM spokesman Tom Wilkinson said in a statement. "We believe the auto financing business will continue to evolve and we'll continue to assess our overall needs."
As late as May GM had been considering options that would have given it back a captive auto financing company.
But Detroit-based Ally, now 56-percent owned by the U.S. Treasury, balked at proposals to transfer control of the auto finance portion of GMAC. The company provided financing for about 30 percent of GM car buyers in the first quarter.
JPMorgan Chase was the No. 1 U.S. auto lender in the first quarter while Wells Fargo was No. 2, according to data for the first quarter compiled by Experian Automotive.
The Treasury has hired Lazard Ltd (LAZ.N) to advise it on the sale of GM stock.
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