Wednesday, 18 August 2010

GM Files for IPO to Cut Treasury’s Stake One Year After Bailout

General Motors on Wednesday, hoping to put bankruptcy in its rearview mirror, filed for an initial public stock offering that could raise as much as $15 billion for the iconic U.S. auto maker.
In addition to putting GM back on its feet financially, the move will allow the company to break free from the control of the U.S. government, which took a majority ownership in GM in an effort to keep the company from disappearing altogether during the darkest days of the recent financial crisis.
The lead underwriters of the offering are Morgan Stanley (MS), JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C).
Some analysts have questioned whether the offering may be too early. But company officials, including outgoing chief executive Ed Whitacre, as well as top members of the Obama administration, have pushed to get the deal done as quickly as possible.
For the company an IPO is a symbolic sign that it can stand on its own feet again. For the administration, the move suggests the government made the right decision in using billions of taxpayer funds to keep the company afloat.

The company’s filing with the SEC did not include the number of shares GM plans to sell. But GM said it plans to sell both common stock and preferred shares, and that it will dual list in the U.S. and in Canada.
In a press release, GM said the amount of securities offered will be determined by market conditions at the time of the offering.
The filing includes a number of risk factors which serve to warn investors of the significant hurdles GM faces in achieving financial stability and long-term profitability. Topping that list of risk, perhaps, is what GM describes as “a negative public perception of our products in relation to those of some of our competitors.”
“Changing this perception, including with respect to the fuel efficiency of our products, will be critical to our long-term profitability,” GM continued in the filing. “If we are unable to change public perception of our company and products, especially our new products, including cars and crossovers, our results of operations and financial condition could be materially adversely affected.”
In addition, the company noted that global sales of all cars has fallen in recent decades.
“Global vehicle sales have declined significantly from their peak levels, and there is no assurance that the global automobile market will recover in the near future or that it will not suffer a significant further downturn,” the company warned.
Finally, as GM has struggled through leadership changes, bankruptcy and government ownership, its competitors, notably Ford (F: 12.20 ,0.00 ,0.00%), have been busy pushing new products into the market.
“If we are unable to produce new and improved vehicle models on a basis competitive with the models introduced by our competitors, including models of smaller vehicles, demand for our vehicles may be materially adversely affected,” GM said in the filing.

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