Volumes have been written on General Motors' initial public offering plan, which has been rumored almost back to when the No.1 car company came out of Chapter 11. CEO Ed Whitacre has said on several occasions that GM wants to pay back the money it owes the federal government via the IPO process.
The latest rumors have been that GM would file an S-1 with the Securities and Exchange Commission as a preparation to the actual event. And it could be that the company is looking to raise $12 billion to $16 billion, according to a report from Bloomberg, which also says GM has secured a $5 billion credit line from 15 banks. The news agency reports that "More than half [of the banks] are named in the draft of the document as underwriters, including Morgan Stanley, JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Credit Suisse Group AG."
GM, which reported net earnings of $1.3 billion in the second quarter on revenue of $33.2 billion, owes the government $50 billion, so the questions the S-1 may answer are: How many shares the Treasury will sell and for what amount? GM's market capitalization would have to be about $70 billion to make the taxpayers whole for the 61% they hold in the company.. Ford Motor (F) has a market cap of $43 billion, so the larger figure may be a stretch for GM.
As with any IPO, one question will be what the company plans as a "use of proceeds." It's assumed that most of the capital will go to the U.S., but GM may also have further plans to expand or to underwrite its growing business in China. GM also needs money to bolster its Vauxhall and Opel operations in Europe.
Where GM spends the money it gets from the IPO is a risk shareholders would face if they invest in the newly public company.
Managing your Portfolio
Keeping your portfolio and financial life fit!View Course »