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GM returns to NYSE after raising $20 billion in IPO


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GM returns to NYSE after raising $20 billion in IPO

GM, whose predecessor was listed on the NYSE on Dec. 20, 1916, according to the exchange's Web site, started trading today under the ticker GM.

November 18, 2010 - 8:42 am ET

UPDATED: 11/18/10 9:48 a.m. ET

DETROIT -- With the sound of a Corvette horn marking the occasion, General Motors Co. returned to the public markets today, passing another milestone in the automaker's return from bankruptcy.

CEO Dan Akerson rang the opening "horn" on the New York Stock Exchange as GM's common stock debuted at $35.00 a share, according to CNBC's live coverage this morning.

The shares rose about $2.30, or about 6.9 percent, to $35.30 in the opening minutes from the IPO's price of $33 a share.

"It's exciting," Akerson told CNBC. "If it closes up higher (on the day) I'll be happy."

The U.S. government, which rescued the automaker last year with a near $50 billion bailout, will reduce its stake from 61 percent to around 26 percent as part of the initial public offering.

GM's owners, including the U.S. Treasury, sold $15.8 billion of common shares at $33 each yesterday in the second-largest U.S. IPO on record, according to a statement. The company's offering of $4.35 billion of preferred shares and an overallotment option may boost the total to $23.1 billion, more than the $22.1 billion raised by Beijing-based Agricultural Bank of China Ltd. in the biggest IPO of common stock in history.

GM was widely expected to exercise the overallotment today.

The offering from GM came 16 months after it emerged from bankruptcy and brings Akerson closer to his goal of returning the $49.5 billion the automaker received in a taxpayer bailout last year. The Treasury, which will get as much as $13.6 billion from the IPO, will have to sell its remaining GM shares at an average of about $53 each to make back its total investment, data compiled by Bloomberg show.

The IPO “is a very encouraging sign,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion. “It just demonstrates the level of enthusiasm that shareholders have for the company.”

GM, whose predecessor was listed on the NYSE on Dec. 20, 1916, according to the exchange's Web site, will start trading today under the ticker GM. The automaker will be listed on the Toronto Stock Exchange under the ticker GMM.

GM, Lehman

General Motors Corp. filed for Chapter 11 bankruptcy protection on June 1, 2009, after the failure of New York-based Lehman Brothers Holdings Inc. in September 2008 froze credit markets and helped cause the longest recession since the Great Depression.

GM's owners sold 478 million shares of common stock yesterday for $33 each in the biggest U.S. IPO since San Francisco-based Visa Inc.'s $19.7 billion sale in March 2008, according to data compiled by Bloomberg.

The Treasury needed to sell all of the GM shares it held at an average price of $43.67 to break even on its investment. That would require its remaining 500 million shares to be sold at $53.07 each, data compiled by Bloomberg show.

“We will only get our money back if we are very patient and if GM performs very well,” said Joe Phillippi, principal of consulting firm AutoTrends Inc. in Short Hills, N.J. “GM will really have to hit the ball out of the park in the next couple of years.”

Treasury's stake

The Treasury offered about 358.5 million shares in the IPO, about 95 million more shares than initially planned, and the UAW's retiree health-care trust sold 18 million more, according to GM's regulatory filings. The overallotment option increased by an additional 14.3 million shares offered by Treasury and 2.7 million by the UAW trust.

The IPO would lower the Treasury's stake to 37 percent, or 33 percent with the overallotment option, from 61 percent, the filings showed. The UAW trust's holdings would drop to 14 percent, or 13 percent with the option, from 20 percent.

GM's IPO “is an important step in the turnaround of the company and for our work to recover taxpayer dollars and exit this investment as soon as practicable,” Treasury Secretary Timothy Geithner said in a statement. “It is now widely recognized that the taxpayers' investment not only helped save jobs during the worst economic crisis in a generation but also gave the auto industry a solid foundation on which to build.”

Relative value

While the Treasury increased the number of shares it had originally planned to sell, Canada and Ontario left their portion of the offering unchanged. Canada will recover more of its investment in the bailout than if it sold more shares in the IPO if GM shares rise. GM boosted its offering price to as much as $33 on Nov. 16, from $26 to $29.

At $33 a share, GM is valued at 7.8 times this year's earnings, based on its net income in the first nine months of 2010. Ford Motor Co. trades at 8.1 times analysts' estimates for 2010 profit, the data show. Ford has been the world's most profitable automaker this year through September.

GM, which lost $82 billion from 2005 to 2008, was valued at an average of 10.3 times profit from 2000 through 2004, monthly data compiled by Bloomberg show. Ford traded at an average of 13 times earnings in the same period.

‘Underappreciated story'

GM reported third-quarter net income of $2.16 billion last week, bringing its earnings this year to $4.77 billion. While the company will have positive earnings before interest and taxes in the fourth quarter, they will be “significantly lower” than the first three quarters of the year, Akerson said on a Nov. 10 conference call.

The automaker sold shares after the Standard & Poor's 500 Index rose to a two-year high this month on speculation the U.S. economy won't slip back into a recession. The benchmark gauge for U.S. equities closed little changed yesterday after falling for four straight days, the longest streak since August.

“GM is an underappreciated story,” said Dan Veru, co-chief investment officer at Palisade Capital Management LLC in Fort Lee, N.J., which oversees $3.1 billion. “The shares are going to work their way higher on the first day and then trade up over time. Over the next year the stock is going to work its way into the mid-$40s.”

Shanghai-based SAIC Motor Corp., GM's partner in China, bought a 0.97 percent stake in GM for $500 million, the Chinese automaker said in a statement today. The Kuwait Investment Authority may acquire a stake of 1 percent or less, a person familiar with the deal said this week.

Underwriters

Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. led the IPO that includes 35 underwriters, according to a GM filing with the Securities and Exchange Commission. Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc. and Royal Bank of Canada were also listed in the prospectus.

GM's underwriters expect to exercise the so-called greenshoe, or overallotment option, unless the stock price falls, a person familiar with the matter said. The decision will be made after trading begins, said the person, who declined to be identified because the matter is private. The underwriters have 30 days to exercise the option.

The automaker's employees were offered as much as 5 percent of the common stock through a directed-share program, GM's filing shows. The program will be one of the largest of its kind in history, according to the person.

Final decisions

GM's management team and bankers from the company's lead underwriters, including Morgan Stanley CEO James Gorman and Chairman John Mack, all met on the investment bank's capital market floor at its Manhattan headquarters to make the final decisions on the IPO yesterday afternoon, the person said.

The bankers and GM executives called Treasury Department officials, including Auto Task Force head Ron Bloom, to make final decisions on pricing and increasing the size of the preferred stock offering, the person said.

Mary Claire Delaney, a Morgan Stanley spokeswoman, did not immediately return a phone call seeking comment. Mark Paustenbach, a spokesman for the Treasury, declined to comment.

Noreen Pratscher, a spokeswoman for GM, said she couldn't comment about employee participation in the IPO or pricing discussions.

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20101118/OEM/101119804/1131#ixzz15e8411PQ

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