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This is a great signal for the presumed competitiveness of GM going forward. Some estimate that their costs per car have been reduced $4,000-6,000, depending upon the model. This would be a great result for both the taxpayer, and the future of an American car industry.
General Motors on Tuesday increased both the size and price of this week’s planned stock offering, according to published reports, as the giant automaker responded to strong investor demand less than two years after a wrenching bankruptcy filing.
Under the latest figure the stock offering, expected to be priced late Wednesday, could raise $18 billion and cut the federal government’s stake to 26 percent from the current 61 percent.
The increase would boost the automaker’s market value to about $50 billion, slightly less than rival Ford Motor Co., although it would still leave the U.S. government short of what it needs to recoup the whole bailout.
GM announced earlier it would raise the offering price to $32 to $33 per share, up from a previously announced range of $26 to $29 per share.
The strong demand is good news for U.S. taxpayers and the Treasury, which is likely to take in more than $10 billion from the IPO proceeds while retaining a significant equity stake in the company. The Obama administration has said it would need to ultimately get $36 billion to break even, including $6 billion in pre-bankruptcy help given to GM and $30.1 billion in Chapter 11 exit financing.
Others have said the total taxpayer help extended to GM is worth closer to $50 billion.
If GM’s stock price rises in the months and years after the offering, taxpayers will come closer to the break-even point. GM shares are expected to begin trading on the New York and Toronto stock exchanges Thursday.
The GM offering is now expected to be the second-largest U.S. initial public stock offering ever, and the sixth-largest globally, according to The Wall Street Journal.
During the past two weeks, investor interest in GM has risen as the company’s executives have jetted around the globe making sales pitches to big investors. The company has made profits for three straight quarters and thinks earnings could increase even more if the U.S. auto market rebounds from a 30-year low last year. Demand for GM stock is so heavy that one person briefed on the IPO said orders are seven times the number of common shares that are up for sale.
At $33 apiece, the total value of the 1.5 billion outstanding GM shares would be nearly $50 billion, up $6 billion in the last two weeks. That’s a huge improvement, but still short of the $65.6 billion market value needed for the government to get back all the taxpayer dollars it used to get GM through a painful bankruptcy restructuring.
The government, which became GM’s biggest shareholder when it gave the automaker $50 billion to get through bankruptcy, hopes to get the money back through the IPO and several follow-up sales that could take two or more years.
The share price increase and the rising market value are good news, though, because they reduce the amount of money the government has to earn back in the follow-up sales after the IPO, said Joe Phillippi, president of AutoTrends Consulting in Short Hills, N.J.
“If GM performs as expected, the stock will steadily improve in valuation,” rising to $45 or more in the next year, he said.
Analysts say GM’s share price is likely to rise above $33 once it begins trading on the New York Stock Exchange under the company’s old symbol, GM. The shares should rise, they say, as auto sales continue to slowly improve during the next few years. If the shares get to $50, the government will get back all $30 billion left from its original $50 billion bailout.
The Detroit automaker, just 16 months out of bankruptcy protection, also said Tuesday it will now sell 80 million shares of preferred stock for $50 each, up from 20 million shares from two weeks ago. It will use that money to make payments on its pension and retire debit.
The increase in preferred shares lifts the amount GM will raise in the sale from $3 billion to $4 billion, according to a company statement. The preferred shares will be converted to common stock in 2013.
The final price of GM’s common stock will be set Wednesday, and bankers may stop taking orders for the shares as early as Tuesday afternoon because they would have no more to sell, according to the person briefed on the IPO.
GM’s improving finances are pushing up demand for the shares. Last week, it announced a third-quarter profit of $2 billion, bringing its earnings to a healthy $4.2 billion for the year. In presentations to investors, GM said its debt and labor costs have been cut so much that it can break even at the low point in an auto sales slump. If sales fully recover, the company said it could make $17 billion to $19 billion per year before taxes.
There still are problems, though. Even after the IPO, GM will be about 40 percent owned by the government, which the company said has irked buyers and cost it sales. GM’s pension plans have far less money than they need, the company’s European operations are losing money.
- GM’s IPO Just Got More Expensive (huffingtonpost.com)
- GM may raise target price range for IPO (msnbc.msn.com)
- GM Revving Up for IPO (seekingalpha.com)