Strong demand convinces GM to raise the planned IPO stock price.
With its return to public trading just days away, General Motors has announced it will increase the price of its new shares and expand the size of the upcoming IPO.
The big jump – from a range of $26 to $29 a share to $32 to $33 – could turn the sale of the U.S. Treasury’s stake into a profit, rather than a multi-billion-dollar loss. Meanwhile, the maker will pocket more money of its own by increasing the number of preferred shares to be sold to 80 million. That will increase the yield from $3 billion to $4 billion.
The news means that the GM initial public offering, which is expected to take place on Thursday, will generate more than $16 billion, just short of the nearly $20 billion record for an IPO, set by Visa in 2008.
The decision to up the share price is no surprise considering the strong response GM and its underwriters have received over the last several weeks as they’ve fanned out to make their pitch to potential investors. The original proposal was reportedly generating as much as five times more demand than would have been available at the lower share price.
The IPO will begin the process of winding down the U.S. Treasury’s role in what critics derisively refer to as “Government Motors.” The current taxpayer stake is 60.1% and will wind up at a majority 40% stake after Thursday, if all goes according to the latest plan.
There had been concern that at $26 a share, the low end of the original proposal, the Treasury might lose as much as $5.4 billion. The White House had been pressing for a share price of $30, the so-called Obama Number covering the investment made in GM by the current administration. At $33 a share, however, the sale would even begin to cover some of the money invested in General Motors by the Bush Administration, which authorized a partial bailout immediately after the 2008 presidential election.
Analysts say that if, as expected, GM shares gain value following the IPO, the maker and government could ride that momentum and sell off even more shares at a higher price. Eventually, if all goes well, the Treasury could turn a profit.
Helping buoy this newfound optimism is the strong performance of other automotive stocks, notably including Ford Motor Co., which saw its shares surge past the $17 milestone on Monday. That compares with a low point of barely $1 during the depths of the recent recession.
Interest in the GM IPO has been building for several days now, even though the stock markets, in general, have been off in recent days.
Steve Rattner, the former investment banker and Obama administration auto czar, said this week he would be surprised if GM’s shares didn’t sell above the offering price.
Revenues from the additional shares of preferred will help pay off outstanding debt or contribute to GM’s underfunded pension funds.
It could also assist the automaker’s costly push into electrification, as TheDetroitBureau.com reported last month.
GM’s IPO is expected to be formally priced on Wednesday and begin trading on the New York and Toronto Stock Exchanges on Thursday.
Morgan Stanley and J.P. Morgan, BofA Merrill Lynch, Citi, Goldman, Sachs & Co., Barclays Capital, Credit Suisse, Deutsche Bank Securities and RBC Capital Markets are the joint managers for the offering.
(Joe Szczesny contributed to this report.)