GM to sell most stock in U.S., split shares: sources

NEW YORK (Reuters) - Top U.S. automaker General Motors Co GM.UL will allocate most of the shares in its initial public offering to U.S. investors and plans to set a share price low enough to attract retail investors, five people familiar with the matter said.

GM is likely to sell about 80 percent of the common shares in its IPO and more than 90 percent of the preferred shares in North America, the people said. The people asked not to be identified because preparations for the IPO remain private.

After a stock split, the shares could be priced at around $20 to $25 apiece, the sources said. That price range is seen as low enough to attract retail investors, who could account for as much as 25 percent of the offering, they said.

Most companies conduct a share split before their public float to lower the per-share price to between $10 and $20. The common practice is aimed at making the stock liquid and accessible to retail buyers.

Before a split, GM shares would have to price at $133.78 per share for U.S. taxpayers to recoup the $40 billion invested in the automaker’s common stock, according to an estimate prepared by Neil Barofsky, inspector general for the government’s Troubled Asset Relief Program.

GM has yet to settle on the valuation for the entire company or a per share price range, the sources said.

GM and the U.S. Treasury have repeatedly declined to comment on the IPO, citing securities regulations.

The Treasury said in a statement released on Friday that IPO investors would be sought across the multiple geographies with a focus on North American investors and that the investor pool would be large and diverse.

The U.S. government used $50 billion of taxpayer money to help GM through a government-assisted bankruptcy. GM has repaid $6.7 billion of that amount that had been held in debt.

GM avoided liquidation and the Treasury took a 60.8 percent stake in the automaker, which it plans to begin exiting by selling shares in the IPO.

GM needs to have a market valuation of about $67 billion if U.S. taxpayers are to break even on the common stock the Treasury still holds. That excludes the $2.1 billion in preferred stock also held by the government.

An IPO price of about $20 per share would imply a roughly 7-1 stock split ratio.

But IPOs typically price at a discount of 10 percent to 15 percent to theoretical fair value to reward investors for taking a risk on a new issue and pave the way for future stock floats.

In GM’s IPO, the discount could be as much as 20 percent compared with the U.S. Treasury’s break-even point, two sources previously told Reuters.

The value of the GM deal will not be set for weeks, but it is expected to be one of the biggest IPOs of all time, globally, with estimates ranging as high as $20 billion, sources said.

GM’s early plans envisaged selling between $12 billion to $16 billion of common stock, as well as $3 billion to $4 billion in preferred stock that would convert to common shares under a mandatory provision, a source told Reuters earlier.

As of now, the United Auto Workers healthcare trust, which owns 17.5 percent of GM, and the governments of Canada and Ontario, which own 11.7 percent, have not decided whether to participate in the IPO, another source familiar with the sources said on Wednesday.

With the approach of U.S. midterm congressional elections and the hefty taxpayer investment, the IPO has become a political flashpoint.

The Obama administration is eager to paint the auto industry bailout and GM’s IPO as a success while Republicans and other bailout critics are keen to point out problems.

The Treasury said last week it would not directly involve itself in share allocation decisions. Those decisions will be left to an underwriting syndicate led by Morgan Stanley, JPMorgan, Bank of America Merrill Lynch and Citi.

Reporting by Soyoung Kim and Clare Baldwin in New York, Kevin Krolicki in Detroit and Philipp Halstrick in Frankfurt