General Motors is confirming reports that it will increase the number of common shares to be sold in its Initial Public Offering.
The automaker Wednesday morning released a statement that said 478 million shares will be sold starting Thursday. Originally, GM was expected to offer 365 million shares. The estimated price is $32 to $33 per share.
Morgan Stanley and J.P. Morgan, Bank of America Merrill Lynch, Citi, Goldman, Sachs & Co., Barclays Capital, Credit Suisse, Deutsche Bank Securities and RBC Capital Markets will be the joint book-running managers for the offering.
The move, coupled with an expected stock price of $33 per share, brings the U.S. government closer to getting back the $50 billion it spent bailing out GM last year. But depending on how GM performs in the next few years, taxpayers could still come up short.
If the government sells 412 million shares for $33 each, it will get $13.6 billion. It will still have about 500 million shares, or about 33 percent of GM. It would have to sell them for about $53 a share, or $26.4 billion, for taxpayers to get their $50 billion back.
GM says it will repay the government $9.5 billion this year, not including money from the IPO.
The increased number of shares could make GM’s IPO on Thursday the largest in history for a U.S.-based company. If GM’s sale of preferred shares is included, the offering could have a total value of over $22 billion, topping Visa Inc.’s $19.7 billion IPO in 2008, according to the IPO tracking firm Dealogic. It could even surpass Agricultural Bank of China’s $22.1 billion offering in July to become largest IPO in the world.
Demand for GM stock was so heavy that GM’s bankers stopped taking orders for the sale on Tuesday afternoon after essentially running out of shares to sell, according to the person, who asked not to be identified because he is not authorized to speak publicly about the sale.
The shares will start trading on the New York Stock Exchange on Thursday under the ticker “GM.”
During the past two weeks, interest in GM stock has risen as company executives flew across the globe making sales pitches to big investors. The automaker has made profits for three straight quarters. It thinks earnings could increase even more if the U.S. auto market rebounds from a 30-year low last year.
The government, which is GM’s largest shareholder, hopes to get all of its bailout money back through the IPO and several follow-up sales that could take two or more years.
The share price increase and GM’s rising market value are good news because they reduce the amount of money the government has to earn in follow-up sales after the IPO, said Joe Phillippi, president of AutoTrends Consulting in Short Hills, N.J.
“If GM performs as expected, the stock will steadily improve in valuation,” he said.
There still are problems, though. Even after the IPO, the government will own about a third of GM, which the company said has irked buyers and hurt sales. GM’s pension plans have far less money than they need, and European operations are losing money. Bankruptcy devastated investors in the old GM. Bondholders lost $27 billion and shareholders were wiped out.
But the company’s financial outlook has improved recently. Last week, GM announced a third-quarter profit of $2 billion, bringing its earnings to a healthy $4.2 billion for the year. In presentations to investors, GM said its debt and labor costs have been cut so much that it can break even at the low point in an auto sales slump. If sales fully recover, the company said it could make up to $19 billion per year before taxes.
© MMX WWJ Radio, All Rights Reserved. The Associated Press contributed to his report.