Most companies don’t throw an IPO party after being in business 102 years, but that’s what American auto giant General Motors is slated to do some time this fall after its stock offering. The GM IPO and return to public stock trading will be the first step in removing the government bailout from the automaker and getting back to private enterprise.
This week the company announced its plans to go public with what could be the biggest IPO since Visa, Inc. (NYSE: V) at its near $20 billion initial public offering in March 2008. Most analysts suspect the General Motor IPO will raise about $20 billion, but the precise amount will be contingent on the investing public’s willingness to bet on a company that even outgoing CEO Ed Whitacre tabbed, “Government Motors.”
General Motors’ shares will trade under their former stock symbol, GM, and they are expected to debut on the New York Stock Exchange sometime between late October and late November. Given the politically charged nature of this IPO, it’s almost certain that the stock will begin trading before the November congressional elections. Although both government officials and GM executives have denied the obvious inference that can be drawn between the proposed IPO date and the midterm elections, it’s pretty clear such an IPO date would be far from a coincidence.
It’s no secret that the Obama administration wants to claim a major victory after its $50 billion GM bailout. A growing skepticism among the public over the role government should play in saving “too big to fail” institutions like big banks and big automakers has made the GM IPO just as much a political issue as a financial issue. That’s why most astute observers of this issue think that political calculations were atop the list of concerns in “Project Dawn,” the confidential machinations of the group of bankers, Treasury officials and GM executives who plotted the rebirth of the former auto stalwart.
Yet aside from the politics, there were details—a whole lot of details—released on the pending IPO. Here are a few of the most significant:
- The U.S. Treasury plans to sell about 20% of the 304 million common GM shares it holds, reducing its stake in the company to below 50%.
- The Treasury will not include any of its preferred shares in the IPO.
- GM does not plan to sell new common stock in the IPO, but does plan to issue preferred stock that would generate cash for the automaker.
- The U.S. government currently owns approximately 61% of GM after converting $43 billion of the $50 billion in funding to the automaker into equity.
- Bank of America (NYSE: BAC), Citigroup (NYSE: C), JPMorgan (NYSE: JPM) and Morgan Stanley (NYSE: MS) have been selected as the lead underwriters for the massive IPO.
The size of this IPO will be crucial, because in order for taxpayers to recover the $43 billion “invested” in GM, the market value of the automaker will have to come close to $70 billion. GM’s proposed market capitalization target would put it well above rival automaker Ford Motor Co.
(NYSE: F), with a market cap of just over $40 billion, and Toyota Motor Corp. (NYSE: TM), with a market cap of $110 billion.
The GM IPO is the quintessential example of big government’s intersection with big business. This fall—very likely before the November midterm election—we’ll see if the investing public is willing to get behind the wheel of this equity vehicle.
As of this writing, Jim Woods did not own a position in any of the stocks named here.
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