GM files for IPO and plans dual listing

NEW YORK/DETROIT Thu Aug 19, 2010 5:32pm EDT

Vehicles for sale are parked at a Cadillac dealer in Sherman Oaks, California August 17, 2010. REUTERS/Mario Anzuoni

Vehicles for sale are parked at a Cadillac dealer in Sherman Oaks, California August 17, 2010.

Credit: Reuters/Mario Anzuoni

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NEW YORK/DETROIT (Reuters) - General Motors Co GM.UL took a big step toward repaying a controversial taxpayer-funded bailout by declaring plans for a landmark stock offering that represents a critical test for the Obama administration.

The automaker said it planned to list the shares on the New York Stock Exchange and the Toronto Stock Exchange in an initial public offering that comes amid a still-weak global market for cars that is vulnerable to a further downturn.

The Obama administration wants to be able to cast its $50 billion GM bailout as a financial success in the face of public skepticism and Republican political opposition but some analysts are still wary of the offering.

GM's IPO could be the biggest since Visa Inc's (V.N) $19.7 billion March 2008 offering, and could raise up to $20 billion, though analysts cautioned that its size depends on still-untested investor demand for a restructured automaker with only two consecutive quarters of profits.

GM's initial filing with U.S. securities regulators did not say how many shares would be sold or give an expected price range for the IPO.

"We're looking at a second half that is potentially weaker than the first half," said Dennis Virag, president of Automotive Consulting Group. "That could certainly hurt the sale of the shares."

"I don't think this is a good time to be going public," Virag said. "It's more political than practical."

Trading in GM shares is expected to start between late October and the U.S. Thanksgiving holiday on November 25, according to people involved in the process. A stock offering in late October would mean trading would start just before the November congressional elections.

Government officials and GM executives have repeatedly denied any link with the elections.

The 102-year-old onetime blue chip is expected to return to the NYSE under the "GM" ticker symbol it had before the government-funded bankruptcy.

Adding a stock listing in Toronto underscores the role the governments of Canada and Ontario played as junior partners to the U.S. Treasury in keeping GM from liquidation.

The long-running confidential preparations for the IPO were dubbed "Project Dawn" by the group of bankers, Treasury officials and GM executives led by Chief Financial Officer Chris Liddell.

GM Chief Executive Ed Whitacre, who steps down at the start of September, has said the automaker needs to distance itself from government ownership and the label "Government Motors" to build momentum in its turnaround.

"I just think that the risk of failure with the IPO is bigger than the risk of being known as Government Motors," said Brad Coulter, a restructuring specialist at O'Keefe & Associates.

PART OF IPO TO RAISE CAPITAL

The U.S. Treasury said it would not include any of its preferred shares in the IPO and did not indicate how long it would take to shed its stake.

The Treasury plans to sell about 20 percent of the 304 million common GM shares it holds, reducing its stake in the top U.S. automaker to under 50 percent, sources have said.

GM does not plan to sell new common stock in the IPO but plans to issue preferred stock that would generate proceeds for the automaker. Such an offering is a less-risky form of equity that could attract dividend and growth fund investors.

Although bankruptcy eliminated about $40 billion in unsecured debt and other obligations for GM, the automaker still needs funds to restructure its money-losing Opel unit in Europe and address a pension shortfall of about $26 billion.

GM has posted two consecutive quarters of profit after slashing costs and debt in bankruptcy and dropping the Pontiac, Saab, Hummer and Saturn brands.

The U.S. government currently owns almost 61 percent of GM after converting $43 billion of the $50 billion in funding to the automaker into equity.

TAXPAYERS MADE WHOLE?

The total value of the GM stock offering would be critical. For U.S. taxpayers to recover the $43 billion invested in GM, the market value of the automaker would have to be near $70 billion.

After the offering, the U.S. Treasury and Canada will no longer have the right to designate board nominees. Treasury named four directors in July 2009, including Dan Akerson, who was named as Whitacre's replacement earlier in August.

However, GM also said the U.S. Treasury would continue to influence executive appointments and compensation, its business strategy, employee and union decisions and debt and equity issuances after the IPO.

GM said risks for potential investors included a still-weak global market for cars that could be vulnerable to a further downturn and the pressure it faces to roll out new models after cutting back on development spending in recent years.

Borrowing a page from the turnaround strategy that helped lift Ford Motor Co (F.N), GM said in its filing that it aimed to shift more than half of sales volume to global platforms by 2014.

That would mark an increase from about 17 percent now and allow GM to slash costs and reduce complexity in its manufacturing operations.

Republican Senator Charles Grassley has asked a special Treasury Department watchdog for an analysis of the GM IPO and how much money would be returned to taxpayers.

Bankers and credit analysts have offered a case for valuing GM as high as $80 billion, given projections from expected 2011 cash flow and comparisons with rival Ford.

Ford, the only U.S. automaker to have avoided bankruptcy, has a market capitalization of just over $40 billion. Japan's Toyota Motor Corp (7203.T) (TM.N), which tops GM in global sales, has a value of about $121 billion.

PROBLEMS TO COME

Analysts see GM as being in the early stages of a turnaround, helped by sharply lower costs, recovering sales in the United States and growth in overseas markets, led by China.

Despite the company's progress, it still faces hurdles restructuring its money-losing Opel unit, which is struggling in a slack European auto market.

GM's 8.375 percent bonds due in 2033 were little changed after the filing at 35.375 cents on the dollar, according to MarketAxess data.

Those bonds issued by the pre-bankruptcy GM are being traded as a speculative play on the equity in the post-IPO GM. Bondholders who had been owed $27 billion received a 10 percent equity stake in the restructured GM through the bankruptcy.

Morgan Stanley (MS.N), JPMorgan (JPM.N), Bank of America Merrill Lynch (BAC.N) and Citigroup Inc (C.N) have been selected as the lead underwriters for what is expected to be one of the biggest global IPOs.

(Reporting by Clare Baldwin in New York and David Bailey and Kevin Krolicki in Detroit, additional reporting by Ben Klayman, Bernie Woodall, Soyoung Kim, Rodrigo Campos, Dena Aubin, Chuck Mikolajczak, Jonathan Spicer, Liana B. Baker, Jennifer Kwan, John Crawley, Dan Wilchins and Walden Siew; editing by John Wallace, Matthew Lewis, Gerald E. McCormick and Phil Berlowitz)

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Comments (3)
ArcticFireGuy wrote:
So How does this work? The American people bail out GM and then Gm sells us shares of the company we already bailed out?? I guess I need a better education cuz’ that kind of math don’t work in my checkbook…. :)

Aug 18, 2010 9:33pm EDT  --  Report as abuse
ssanchez wrote:
Companies can get bailout money from the government to sustain them for the short term, and then come back to file IPO to get cash infusion. If only we can all be so lucky to get bail out money to hold us over till the economy gets better. I guess the only thing that is available to regular Joe Smoe like you and me is personal bankruptcy. Though not the ideal situation in the world, it is the only thing that can save us if we are in deep financial trouble. For more information on personal bankruptcy, visit http://tofilebankruptcyornot.com

Aug 18, 2010 12:36am EDT  --  Report as abuse
america4god wrote:
While in college, I dreamed that the railroads would rise from the ashes of union abuse and heavy regulation. I believed that Amtrak would one day rise to its original status of prestige because the government will reinvest and never let it fail. How wrong could I be? Had Amtrak failed, it would be better for America because private capital is the only way out. The entrepreneurs of this so called “evil” capitalistic system are the only ones with guts enough to reduce union pensions, cut through the red tape, reinvest billions and produce a product that works. With $54,000 per year under the PBGC guidelines, Government Motors pension costs are estimated to cost taxpayers $174 billion in 2013. I’m sure Obama is not anxious to cut that figure before November’s election. GM is a government run retirement community. Manufacturing is incidental to the millions of unionized pension voters. So you think you will have a viable Government Motors one year after the IPO? Think again! Are you betting that the Volt will take off and change America? Think again! What happened to the electric car in Briton? The Brits pushed their product with government backed investment. People still refused to drive the over-sized roller skates. Unless Volts are rammed down our throats like health care, you will never see them make a dent. Then too, perhaps a government program will be enacted to double your food stamps if you drive your Volt to a foreign speaking doctors office. Wake up America!

Aug 19, 2010 6:25am EDT  --  Report as abuse
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