Tags: GM | Boosts | IPO | Pricing | Offers | More | Preferred

GM Boosts IPO Pricing, Offers More Preferred Shares

Tuesday, 16 Nov 2010 04:17 PM

General Motors has increased the preferred stock on offer by a third and raised the price for common stock in its landmark IPO, bringing the U.S. government closer to break-even on its controversial bailout.

GM said Tuesday it now plans to sell 365 million common shares for $32 to $33 each, raising about $12 billion. The mid-point of the new range represents an 18 percent increase from the previous share range of $26 to $29.

The automaker also increased the size of its preferred stock offering by $1 billion to $4 billion in a move that will strengthen its balance sheet by paying down pension debt, one of the concerns potential investors had cited heading into the initial public offering.

The final terms for GM's IPO will be set Wednesday, people familiar with the matter have said. The stock is expected to begin trading on the New York and Toronto stock exchanges Thursday.

Including an overallotment provision for both common and preferred shares, the GM deal is now set to raise almost $18.5 billion if it prices at the high end of the new price range.

With GM's advisers expecting excess investor demand even at the higher price range, shareholders led by the U.S. Treasury are weighing whether to expand the number of common shares on offer, a person familiar with the matter said Tuesday.

The U.S. Treasury, which owns 61 percent of GM after its $50 billion taxpayer-funded bailout, is encouraged by the prospect of coming close to break-even in the initial tranche of the stock sale and is closely watching where demand comes in before making a final decision, the source said.

The GM offering had long been seen raising between $10 billion and $20 billion in one of the largest U.S. offerings ever, but the company filed to sell just over $13 billion initially including common and preferred shares.

GM and the Treasury now see that the exceptional investor demand could support a bigger offering, the person familiar with the matter said. The largest U.S. IPO so far is Visa Inc's $19.7 billion stock sale in 2008.

CASH COW AGAIN?

The increasing size of the IPO reflects renewed investor confidence in the world's No. 2 automaker by sales less than a year and a half after dwindling cash and falling sales pushed it into a bankruptcy funded by the Obama administration.

"I think part of it may be the market looking at a restructured General Motors and thinking this can be a cash cow again under certain market conditions," said Brad Coulter, a director at Michigan-based advisory firm O'Keefe & Associates.

If the GM IPO performs well, it could trigger a shift in public sentiment about the Obama administration's hugely unpopular bailout of the U.S. auto industry in 2009, Coulter said.

GM, which lost $88 billion from 2005 through just before its 2009 bankruptcy, earned a $4.1 billion net profit in the first nine months of the year and is on track for its first full-year profit since 2004.

GM has said it can now break even at U.S. industry auto sales as low as 10.5 million vehicles. That means the restructured GM would have made money in 2008 when the old GM lost $31 billion.

The strong investor response to the GM IPO means that the initial loss to U.S. taxpayers will be more limited.

Investors have put in orders well in excess of $60 billion worth of common shares, people familiar with the matter said.

Based on a diluted share count of 1.9 billion, $33 per share would give GM a market value of about $63 billion.

That approaches the roughly $66 billion value that GM needs in order for U.S. taxpayers to break even, based on the U.S. Treasury's remaining common stock holding and a share price projection by the Treasury's special inspector general.

Whether taxpayers are made whole will hinge on subsequent share sales by the U.S. government and how the newly listed GM shares perform.

Meanwhile, GM reduced the dividends on preferred stock, according to two sources familiar with the situation.

GM's preferred shares were expected to have a dividend between 5.5 percent and 6 percent according to a terms sheet obtained by Reuters.

The range for the dividend has been narrowed to between 4.75 percent and 5.25 percent, the sources said.

© 2017 Thomson/Reuters. All rights reserved.

 
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General Motors has increased the preferred stock on offer by a third and raised the price for common stock in its landmark IPO, bringing the U.S. government closer to break-even on its controversial bailout. GM said Tuesday it now plans to sell 365 million common shares...
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2010-17-16
Tuesday, 16 Nov 2010 04:17 PM
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