Motor Trend magazine editor-in-chief Angus MacKenzie names the Chevrolet Volt electric vehicle Motor Trend Car of the Year at the General Motors Aerodynamics Lab in Warren, Michigan. (Nov. 16, 2010)
Bill Pugliano/Getty ImagesMadhavi Acharya-Tom Yew Business Reporter
Shares of General Motors Co., a company that seemed headed for the scrap heap last year, are poised to roar out of the gate Thursday, shattering records for billion-dollar stock offerings and putting the refurbished automaker back in the driver’s seat.
GM will sell 478 million shares at $33 (U.S.) in its initial public offering, or IPO, the company said in a release Wednesday. It will also sell 87 million shares of mandatory convertible junior preferred stock for a total of $4.35 billion.
The total offering size will be $20.1 billion (U.S.), but it could reach $23.1 billion if the investment banks underwriting the deal opt to purchase additional shares in the next month, the Detroit-based manufacturing giant said.
That would put the IPO in the ranks of the largest offerings in history, and mark a turning point for the former blue-chip firm. It survives today only because governments in the U.S. and Canada extended taxpayer-funded billion-dollar bailout worth $60 billion in June, 2009.
“As we prepare to enter the equity markets, all of us at GM are excited about this historic milestone. We are especially appreciative of those who stood by us through the toughest times, and we are dedicated to creating value for all of our stakeholders,†GM vice chairman and chief financial officer Chris Liddell said in a release.
“With a new business model, centered around designing, building and selling the world's best vehicles, we're ready to compete and are confident about the company's future.â€
The shares are expected to begin trading Thursday on the New York Stock Exchange under the symbol “GM†and the Toronto Stock Exchange under the symbol “GMM.â€
Finance Minister Jim Flaherty told reporters in Ottawa that the governments of Canada and Ontario will sell 20 per cent of their common shares as part of the IPO. The shares, given in exchange for bailout funds, are held at a book value of about $15 a share.
“We’ll sell more as quickly as appropriate over time,†Flaherty said.
“We want to make it clear that we’re divesting. We’re not staying in the auto business over time and we’re very pleased that the intervention has worked with the creation of a substantial number of jobs and the preservation of a substantial number of jobs.â€
The share sale will reduce the Canadian government’s stake in GM to about 9 per cent. The U.S. treasury will remain GM’s largest shareholder after the IPO.
Today, the future looks considerably brighter for GM, which lurched into Chapter 11 bankruptcy protection in the U.S. in June, 2009. It lost more than $80 billion in the four years leading up to that court filing.
The court-supervised process allowed the ailing automaker to get its costs under control. It cut thousands of executive and white-collar jobs, closed factors, and shed money-losing brands such as Hummer, Saab, and Saturn. It also renegotiated wage contracts with union workers in the U.S. and Canada.
GM emerged just 39 days later with lower debt and a bailout package. But government and union officials also officially joined executives at the boardroom table, leaving a stigma that the company had become “Government Motors.â€
Since then, GM has posted strong profits, dramatically cut costs, emerged as a market leader in China, and developed new clean-technology products that are garnering praise.
“Emerging from bankruptcy, they have a lot going for them,†said Tony Faria, business professor who specializes in the automotive industry at the University of Windsor’s Odette School of Business.
The final share offering is about one-third larger than initially anticipated.
“It does come as a bit of a surprise,†Faria said. “I didn’t think the IPO would be that enthusiastically accepted.â€
GM earned $5 billion in the first nine months of 2010 and is on track for its first full-year profit since 2004.
It has also garnered praise for its Chevy Volt, a plug-in hybrid electric vehicle, recently named car of the year, though it is not yet in production and won’t make any money for the company in the short-term.
“There’s no guarantee that GM will continue to operate as lean and efficiently as they are right now,†said Faria, who is also who is also the director of the University of Windsor's Office of Automotive Research
Among other challenges, GM will have to keep its workforce lean and battle new rivals in North America in the coming years., he added.
“There certainly are risk factors for the future. Right now, GM is in a very strong position and the interest in their IPO is reflecting that,†Faria said.
GM has emerged as a market leader in China and Brazil, developing markets that will be crucial in the next decade.
China became the world’s largest market last year, with about 13.5 million cars and trucks sold, topping the 10.4 million vehicles sold in the U.S.
In fact, the entire automotive industry has staged an unlikely comeback because of growth in emerging markets.
That strength has boosted shares of other automakers, too, including Ford Motor Co., which prided itself on eschewing government funds, as well as Honda, and Toyota, whose shares bounced back after a decline related to recall troubles earlier this year.
In Canada, vehicle sales have rebounded to the robust levels from a decade-ago. Improvement continues more slowly in the U.S., where average sales are still down by more than a quarter from the previous decade. Sales in emerging markets are at record highs.
“It comes down the fact that we have growing middle class in these countries,†said Carlos Gomes, an economist who follows the auto industry at Scotia Economics. “You can see the tremendous potential for growth there.â€
Are GM shares a good investment?
"My view is the time horizon needs to be either 10 days or 10 years," said Jack Ablin, chief investment officer for Harris Private Bank.
"There are a couple of issues that overhang this company. Even after the IPO, government and the United Auto Workers will still dominate the ownership. The priorities of those owners isn't necessarily bottom-line profits."
"At $26 a share, I thought it was interesting, and that the stock could move up into the mid-$30 range," said University of Windsor business professor Tony Faria. "I don't think there's as much room to make money off the shares at a higher price."
"There is a public perception that this will be easy money," said David Cottom of National Wealth Management, an independent advisor firm in New Jersey. "I think hedge funds and institutions will be taking the shares and flipping them quickly, which leaves more risk to retail investors, who aren't as savvy."
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