Upsized GM IPO Could Be Biggest US Deal Ever

Upsized GM IPO Could Be Biggest US Deal Ever

By Reuters

  • 18 Nov 2010

General Motors Co is boosting the size of its common stock offering by more than 30 percent to $15.5 billion, two people familiar with the matter said, potentially making its landmark IPO the largest U.S. offering ever.

The expansion comes in response to surging demand from investors, who had put in orders worth $70 billion for GM's common shares by late on Tuesday, the sources said.

GM's initial public offering, which will reduce the U.S. Treasury to a minority shareholder in the top U.S. automaker, could raise nearly $23 billion if underwriters exercise the full overallotment option on both common and preferred shares.

The deal could also pay back over $15 billion to the U.S. government, assuming that shares price at the high end of the range and all of the common stock on offer is sold.

That would take the Obama administration closer to break-even on a still controversial bailout that some critics had predicted would be a financial quagmire for taxpayers.

The largest U.S. IPO to date was Visa Inc's $19.7 billion stock sale in 2008.

The increased size of the GM IPO reflects renewed confidence in the outlook for the world's No. 2 automaker less than a year and a half after dwindling cash and falling sales pushed it into a bankruptcy funded by the U.S. Treasury.

GM plans to sell 478 million common shares for $32 to $33 each, raising about $15.5 billion at the mid-point, people familiar with the situation said.

But the strong demand means that the IPO price is likely to settle at the high end of the new price range at $33, one person familiar with the matter said.

In another sign of the deal's positive reception, GM earlier on Tuesday 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 investors had cited heading into the IPO.

The final terms for GM's IPO are expected on Wednesday. The stock is set to begin trading on the New York and Toronto stock exchanges on Thursday.

GM plans to file an amended S-1 document with the U.S. Securities and Exchanges Commission detailing the increased number of shares on offer, the sources said.

Teetering on the brink of failure before the government intervention in 2009, the U.S. auto industry has come through the punishing downturn of the past two years with sharply lower costs and higher profit potential, analysts said.

"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.

U.S. auto sales are expected to rise to 11.5 million units this year from 10.4 million last year, and are widely seen recovering to the pre-recession level of more than 15 million units in the next few years.

Other auto executives said the strong investor interest in GM was a sign of the turnaround in sentiment for the battered auto sector.

"If the GM IPO does well, the whole industry does well," Spyker Chief Executive Victor Muller told the Reuters Autos Summit in Los Angeles.

"A successful IPO for GM, I think, is going to set the stage for more interest in automotive stocks, which can only help," said Muller, who negotiated a deal to buy Sweden's Saab from GM earlier this year.

Henrik Fisker, CEO of Fisker Automotive, who has said his start-up electric car maker could consider an IPO after launching its first car in 2011, agreed.

"I think it's a good sign, the interest in General Motors because it's a good sign for the car business in the U.S.," Fisker told Reuters.

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 also means that the initial loss to U.S. taxpayers will be more limited.

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.