While the expected take from an IPO of a restructured General Motors is not anywhere near the nosebleed levels of the recent IPO of the Agricultural Bank China, the pending stock offering generates a lot of interest because the US government owns 61% of GM. Now that sort of ownership structure may be common among Chinese companies, but it’s pretty rare in the US.
The federal government wants to recover the $43 billion still outstanding on its investment in GM, but the government’s priorities may not match up exactly with that of GM’s managers and their bankers. In order to recoup the government’s entire investment in GM, shares would need to fetch nearly $134 each, according to The Wall Street Journal. That’s a higher price than GM stock ever reached in the company’s pre-bankruptcy days.
From the government’s point of view, the sooner it can sell its GM stock, the better. The feds do not want to be in the automobile business.
GM’s IPO, tentatively scheduled for November, had been targeted to raise about $16 billion. The government, looking to maximize its return, wants the offering to be smaller, in the neighborhood of $8-$10 billion, on the theory that offering fewer shares will drive the price up.
The government would also like to sell enough shares to reduce its ownership of GM to less than 50%. However, if the government forces that to happen, the share price would be lower, defeating the government’s first objective of maximizing its return.
The government also wants to spread the stock around among small retail investors. A $134/share price won’t accomplish that. Instead, GM would split the stock following the IPO so that share prices dropped to $20-$25 a share.
Sales to foreign buyers would not be restricted, but the amounts available to foreign owners would likely be limited.
Naturally, GM and its bankers want the largest IPO possible, both to raise capital for GM and generate fees for the investment banks. Their wishes could still prevail, but that is not likely. The government would prefer to limit payments to the bankers, which are currently judged by most Americans to rank only slightly higher than payday lenders.
The feds want to escape GM ownership with as much cash as possible in the shortest time possible. The two goals may be mutually exclusive, in which case the government will have to wait for payday.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
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