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Some answers about GM's offering

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Some answers about GM's offering



IPO. Those three letters conjure up the dot-com heyday of the 1990s, the era of fast money and instant millionaires.

But most of us didn't get rich quick back then on Netscape or other Internet-related IPOs. And what do we know about Initial Public Offerings of stock?

With GM expected to roll out its new IPO on Nov. 18, we could all use a primer. Here are answers to frequently asked questions.

• What is this GM "road show" we keep hearing about? Isn't the Dream Cruise in August?

The road show is the big show, if you will, of initial public offerings. The company issuing stock has a marketing campaign that it takes on the road to several major cities, often New York and Chicago, but GM's road show also will go to Europe.

"They go on the road to present the investment story to potential investors," said Bill Buhr, IPO strategist for Morningstar.

The road show involves meetings with mutual fund managers, hedge fund managers, endowments, or pension funds. It also helps the issuers of the IPO judge its potential popularity, and helps underwriters better determine how to price it.

• Who sets the price of that GM IPO?

GM does not slap a sticker on the window. Instead, the underwriters -- or investment banks -- involved work up pricing and marketing for the stock offering.

• I'm not dead yet, why should I care about underwriters?

Not undertakers -- underwriters.

Often for a hard-to-get IPO, your best chance of getting shares is if you are a customer of an institution that is an underwriter for the deal.

"Just because you have a brokerage account does not mean you're going to get IPOs," said David Menlow, president of IPOfinancial.com in Millburn, N.J.

If, for example, you have an account at a discount brokerage, such as Fidelity or Schwab, you might have a harder time getting some shares in an IPO because those firms are not underwriters in IPO deals, he said.

The GM deal is huge and includes Morgan Stanley, JP Morgan, Barclays Capital, Bank of America, Merrill Lynch, Credit Suisse and Citi.

For a list of underwriters, you look at the prospectus.

• What's a prospectus?

It's the owner's manual for an IPO, including the nuts and bolts of the company's financial history, management, risks and details.

If you want details on the GM IPO, you can see the GM Web site at www.gm.com /corporate/investor _information/sec/ .

The original S-1 filing with the Securities and Exchange Commission for the GM initial public offering was made Aug. 18. Other amendments were filed after that and will continue to be filed during the IPO process.

GM employees, retirees and dealers also had a chance to sign up in October to buy shares in the IPO. Signing up did not, however, require them to buy.

• Are there IPO blunders?

Ever hear the story of Vonage?

The Internet telephone service had a "friends and family" deal for its IPO in 2006. But early investors didn't feel very friendly toward Vonage.

"The stock price dropped like a rock" -- 30% in the first seven days of trading, said Jay R. Ritter, Cordell Professor of Finance at the University of Florida in Gainesville.

Some investors sued Vonage, charging that company officers offered shares to customers because they knew institutional investors who normally buy IPOs would be reluctant to buy Vonage stock, given the lack of profits.

• Flippers? IPO Pop?

Now here's some lingo that adds sizzle -- and maybe even some steak -- to the IPO madness.

IPO speculators -- known as flippers -- go after quick money and want to sell after a first-day "pop" in the share price.

But not all IPOs pop. Some Michigan investors might remember that Domino's didn't deliver after its IPO back in 2004. The Ann Arbor-based pizza maker lost 50 cents a share in its first day of trading on the New York Stock Exchange.

Going into 2011, the IPO market isn't as hot as it was back in the dot-com heyday. But IPO interest is heating up. Some consumer names -- such as Vera Bradley, a maker of fabric handbags, and Bravo Brio Restaurant Group -- pulled off successful IPOs just this month.

How much pop has the new GM got?

"I don't think there's going to be a 'pop' on General Motors," said Menlow, because it is such a massive stock offering.

Others note that while the stock is new, GM is not a new story.

The new GM may have posted a few profitable quarters. But the auto industry is still the auto industry and, some might say, GM is still GM.



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