General Motors files for initial public stock offering
General Motors Co. filed to become a publicly traded company again, the first step in its plan to sell stock that would pay back billions of dollars of taxpayer support that allowed the automaker to rebuild itself after years of devastating losses.
In a regulatory filing Wednesday, GM highlighted its profitable resurgence from the depths of bankruptcy as it pitched what’s expected to be one of the biggest stock offerings ever.
Wall Street has anxiously awaited for the filing to learn how the giant deal will play out. The initial public offering comes at a time when GM’s financial fortunes are on the rise. Last week, the Detroit automaker reported a second-quarter profit of $1.3 billion on sales of more than $33 billion.
“This is another important step in GM’s rebound and in the recovery of the domestic auto industry,” said Sen. Carl Levin (D-Mich.), who pushed for GM’s bailout last year. “A successful IPO will be even more evidence that the steps the government took in 2008 and 2009 were good for workers, good for Michigan and good for the nation.”
The federal government took a 61% stake in the company after it spent $52 billion to save the business.
Although the stock sale could lift the “Government Motors” label critics have bestowed on GM, there is little financial benefit to such a deal so soon after last year’s bankruptcy, said Logan Robinson, a law professor at the University of Detroit Mercy and former general counsel of auto parts giant Delphi.
The “timing is driven entirely by the immediate political needs of the current owner, the Obama administration, which is facing a tough election,” he said.
Reducing the government’s huge investment in GM would be a boost to President Obama and congressional Democrats heading into the fall elections. Earlier Wednesday, Obama touted his decision to force GM and Chrysler into bankruptcy as part of his decision to expand the auto industry bailouts begun by President George W. Bush.
“Instead of providing them bailouts with no obligations in return, like had happened in the previous administration, we said, ‘We’ll help you out, but you got to restructure, because we want you to be able to compete in the 21st century,’ ” Obama said at a fundraiser for Ohio Gov. Ted Strickland. “Folks are working across the Midwest because of the decision that we made.”
GM won’t sell any common stock itself. Instead, all of the shares to be offered would be sold by the U.S. Treasury and, possibly, by the company’s other shareholders: the Canadian government, the United Auto Workers union and GM’s former creditors.
The company did not disclose how many shares would be sold or estimate their price, details that will come closer to the stock sale, which is expected by year-end.
GM and its current shareholders have to test the waters by taking the sales pitch to investors, to see what they believe the stock should be worth. The state of the stock market in general this fall, and the health of the economy, also will influence the price of the offering.
Nonetheless, the deal is likely to be among the largest in history, rivaling the U.S. record stock offering by credit card giant Visa Inc. in March 2008 that raised $17.9 billion, according to data tracker Renaissance Capital.
Some analysts estimate that the total stock deal will fall in the $15-billion to $20-billion range as the government divests only a portion of its holdings. It’s unlikely that the market would be able to digest the Treasury shedding its entire stake all at once.
The Obama administration needs the offering to be a home run. For taxpayers to get paid back all their money, the new stock price has to translate into a $70-billion value for the entire company when all the shares to be sold plus those retained by current owners are added together.
That’s what auto industry analyst Kenneth Elias calls the “$70-billion question.”
“If they can’t get to that $70-billion valuation … people will ask if GM was a bad investment for the government,” said Elias, a partner at the Maryann Keller & Associates automotive industry consulting firm. Others will say that any loss was worth it because of how it helped the economy, he said.
By comparison, GM archrival Ford Motor Co. has a market value of about $42 billion. Although GM sells more cars, it is now smaller in terms of sales and earnings than Ford.
In the first half of this year Ford earned $4.7 billion on sales of $66.6 billion, which included results from its financing arm. By comparison, GM earned $2.2 billion on sales of nearly $65 billion.
But GM is regaining momentum. Its recent profit was in sharp contrast to the $12.9-billion loss the company recorded in the second quarter of 2009. It has undergone a dramatic restructuring in which it has closed factories, reduced its workforce and slashed expenses.
Where once it had eight auto lines, including the defunct Hummer, Pontiac and Saturn brands, GM now only sells Buick, Cadillac, Chevrolet and GMC autos. That focus has paid off. Through the first seven months of this year, sales of GM’s surviving lines have risen 31% from a year earlier to almost 1.3 million vehicles.
The GM transaction would actually be a sale of two different types of investments. A big chunk of the transaction would represent the government divesting a portion of its shares through the sale of common stock.
GM expects to have a total of 500 million common shares outstanding after the offering.
The automaker will also pitch preferred shares — securities that carry less risk than common shares and that pay a dividend. Money from that would go back to GM as working capital — or funds it could put into the development of new vehicles or new markets or save as a cushion against another economic downturn.
“Preferred shares would be attractive to investors who don’t want to speculate on the common stock but want to see yield,” Elias said.
In a potentially good sign for GM, investors embraced the IPO of fledgling electric car maker Tesla Motors Inc. in late June. Robust demand allowed Tesla and a number of its investors to sell a total of 13.3 million shares at $17 each, more than expected.
Yet it isn’t clear that individuals will line up to get a piece of GM. Many small investors have turned away from the stock market since the devastating crash of late 2008. Instead, safety-seeking investors have been pouring record sums into fixed-income investments such as corporate and government bonds.
And even with its own plans for electric cars and other new technology, GM at its core remains a traditional car and truck maker — a business inherently cyclical rather than one promising steady growth.
By contrast, the most sought-after IPOs generally are young companies with hot products or services that offer the potential for explosive growth.
GM is “not going to be your typical growth investment,” said Matt Therian, an analyst at IPO tracker Renaissance Capital in Greenwich, Conn.
The automaker also faces questions about its management structure.
Just last week Chief Executive Edward E. Whitacre Jr. said he would step down at the end of this month. Whitacre, 68, will be succeeded by Daniel F. Akerson, a GM board member and a top executive at Carlyle Group, the buyout giant. He had no auto industry experience before joining GM’s board a year ago.
The two top executives, Akerson and Chief Financial Officer Chris Liddell, have only scant automotive experience, which could limit investor enthusiasm for the stock. Prior to his work at Carlyle Group, Akerson was a top executive in various telecommunications firms. Liddell joined GM in January, leaving the CFO’s position at Microsoft Corp.
Whitacre initially took GM’s helm in December as an interim chief executive after the board pushed out longtime insider Fritz Henderson, who himself had been on the job for only eight months. Henderson had been named to GM’s top job in March after his predecessor, Rick Wagoner, was ousted by President Obama’s auto task force.
“Investors are now confronted by the fourth CEO in 18 months,” Robinson said. “The new guy has zero automotive experience, and neither does the new CFO.”
GM itself took note of the inexperience of its top managers.
“It is important to our success that the new members of the executive management team quickly understand the automotive industry and that our senior officers quickly adapt and excel in their new senior management roles,” the company said in its filing with the Securities and Exchange Commission.
Jerry.hirsch@latimes.com
Tom.petruno@latimes.com
Times staff writer Jim Puzzanghera contributed to this report.
