| NEW YORK
NEW YORK It's an open question whether General Motors Co's IPO will be the largest U.S. offering ever, but it is already one of the most contentious.
One of the clearest illustrations of the competing interests is the debate over the size of the stock offering. The offering could range from $10 billion to $20 billion, according to several people familiar with preparations for the landmark IPO.
On one side is GM, which is eager to push the "Government" out of "Government Motors," and on the other side is Treasury, which wants to exit its investment as quickly as possible but is skittish of hurting taxpayer returns by swamping the market with shares.
Banks are somewhere in the middle. They want the prestige of a massive deal but also want to pave the way for future business and need to prove they can construct a deal that works, the sources said.
Former Chief Executive Ed Whitacre, before he stepped down, had been pushing for a larger deal, several people said.
"I don't think he was pushing it just to make it the largest, to pound his chest. I think his was a more systemic view, which was: we want to get as big a chunk of the government out as we can because we want them out of our business," one person said.
The banks and advisers on the deal could also benefit from the prestige of a mega offering. That is especially true for the banks, which agreed to a record-low fee in a concession to the Treasury.
A bigger deal could also resonate with employees and car owners and maybe even help attract portfolio managers who may be inclined to start building positions in a stock they think could join an index.
But U.S. officials have been wary of rushing to a large deal, fearing it could undercut pricing and taxpayers' return on a controversial bailout, a source familiar with the situation said.
The Obama administration poured $50 billion of taxpayer money into the U.S. automaker and took a 60 percent stake in an unpopular government-backed bankruptcy.
GM in August filed paperwork for an IPO that will let the U.S. start exiting its stake.
Treasury spokesman Mark Paustenbach declined to comment. GM has repeatedly declined to comment, citing securities regulations that prohibit it from discussing the deal in advance of the IPO.
Regardless of the size of the IPO, it will take years for Treasury to sell off its full stake.
The government already plans to sell its first tranche of shares at a price below where taxpayers would break even, sources have previously told Reuters. A smaller IPO could support prices by restricting the supply of shares and leave the government more to sell if the shares appreciate, thus boosting taxpayer returns.[ID:nN03151099]
"Once you get past a certain size it's less about positives in the market and more about making sure you're not doing something that's going to negatively impact valuation," said one source.
"If markets get choppy you will have to lower your valuation to attract that marginal dollar because of the increased size," that person said.
Visa Inc's (V.N) March 2008 IPO currently holds the record for the largest U.S. IPO, at $19.7 billion. GM has not yet set its IPO size but is expected to raise between $10 billion and $20 billion, sources familiar with the preparations have said.
There is little beyond bragging rights to drive the IPO to the upper end of the expected range.
"You do get to a point where, depending on market conditions, equity money flows, you do need to make sure there is enough money on the sidelines, globally, to be able to absorb the transaction where it is not going to impact price," said one source.
So far this year, the U.S. market for IPOs has struggled. New issue pricings in the United States are the weakest of the past five years -- financial crisis years included. Nearly a third of all U.S. IPOs have priced below range, according to Thomson Reuters data.
Add to that a weaker-than-expected recovery in auto sales, softening demand from China, GM's pension shortfall and 2011 contract negotiations with the UAW, and it becomes more important for GM to have a deep pool of investors than a record-breaking IPO.
Further, investors drawn to liquidity may not see much of a difference between a $10 billion IPO and a $20 billion IPO, several sources said.
"Banks always like bigger deals rather than smaller deals but all the banks recognize that there is $50 billion of stock that needs to get sold over the next three years," one source said.
"Our perspective is going to be to sell as much as possible in the first offering but not overwhelm demand in such a way that the offering trades poorly and raises questions about when the next offering can come," the source added.
"Floating a deal into the market that doesn't work is bad for all the banks so I think everyone wants to find common ground on size and price," another source said.
(Reporting by Clare Baldwin in New York, additional reporting by Kevin Krolicki in Detroit; Editing by Gary Hill)