Demand for GM IPO: Was the Price Set Too Low?

There is already $60 billion in orders to buy shares in the GM IPO according to Reuters. That is an extraordinary number because it is nearly five times what the U.S. car company plans to raise.GM will sell 365 million common shares at $26 to $29 each.The initial public offering will also include $3 billion in preferred stock which will convert to common stock at a later date. There is "excess demand" for the $3 billion worth of preferred shares GM plans to sell, Reuters writes in any analysis of the demand for the offering

If the GM IPO prices at the high end of the range, it will take the portion of the company owned by the Treasury to about 40%, down from the current level of 61%. Even at the current IPO price level, taxpayers will not get their investment in GM back.

Part of the surge in demand is due to the desire by a large number of institutional investors, some of them from outside the U.S. Another important dynamic of the transaction is that GM China partner SAIC Motor Corp. plans to put money into the deal. According to The Wall Street Journal "China's biggest auto maker, SAIC Motor Corp., is negotiating to acquire a stake of about 1% in General Motors worth about $500 million."

The tremendous desire by "smart money" ranging from large pools of capital to China's largest car company raises the thorny question of whether GM's board and its investment bankers priced the shares far too low. A 5x demand for the stock being sold would certainly seem to indicate that. This means that GM's shares will rise after they begin to trade. It will also mean the No.1 US car company probably left a lot of money on the table.

GM, newly risen from the ashes, has not made many mistakes in restructuring after it exited Chapter 11. But, the pricing of its IPO looks like a big one.

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John McBaine

November 27, 2010 The White House Takeover of General Motors: As a retired 38 year career veteran with General Motors, I have been angry and frustrated beyond words since General Motors CEO Rick Wagoner willingly stepped aside when President Obama threatened to replace him if he did not resign. Who gave the White House the authority to remove the CEO of a private corporation? Isn’t the Board of Directors the only legal entity that can take that action? Where were the Board Chairman and Directors or the massive GM Legal Staff when this threat was issued? From Wagoner on down, how could General Motors have miscalculated so terribly and not recognize that their request for a loan, to be repaid with interest, would be instantly categorized by the Democrats and the national media as a “Bail-Out”? And, that the request for a loan would, somehow, provide Obama the perfect opportunity to seize control of General Motors. And that is exactly what General Motors leadership, without even a whimper let alone a fight, allowed to happen. Then the real agony began. As a career employee I, like many other GM employees and retirees, invested in General Motors Common Stock in our company Stock Savings Purchase Plan. Many of us listened to CEO Wagoner and his repeated assurances that “bankruptcy was not an issue” for GM. He made it very clear that GM had no interest or intent to file bankruptcy, as the damage from such action would be “beyond repair”. Along the way, Rick Wagoner even announced publicly his personal purchase of additional shares of GM Common Stock as a means to help express his personal confidence in the company stock. Many of us listened very carefully to his words and actions and some, like me, maintained positions in GM’s Common Stock Plan that represented a major part of our life savings for retirement income. With the White House Crowd now firmly in control of GM their attention shifted quickly to General Motors filing for bankruptcy. And not just any bankruptcy, but a “Special Bankruptcy”. General Motors was then split down the middle and the “Old General Motors” was entered into the “Regular Bankruptcy” process that typically takes years to complete. In doing so, GM’s obligations to the GM Shareholders, bond holders, dealers, suppliers, employees and retirees were zeroed out. GM was then able to walk away from their obligations to the major GM stakeholders under the “Special Bankruptcy” provisions that were quickly rammed down our throats in a few short months. How all this could have been allowed to happen is beyond belief. My life savings in GM have been wiped out. My savings in GM Stock and bonds are gone. Yet, the White House (70%) and UAW (20%) emerge as the owners of the “New GM Stock” after my stock was wiped out. Now we are witnessing the glowing praise being heaped upon General Motors during their IPO. GM’s fabulous financial turn around is being credited to the White House for their “direction” that basically allowed GM obligations to be wiped off the slate. Good luck to any investor in the “New GM IPO”. I can testify to anyone about how much say you have as a common stock owner (who I thought were the real “owners” of the company). Your say is about zero. That is also the value of about 40,000 shares of GM Common that my wife and I had accumulated in our company stock plan from our long term savings to help provide for our retirement income and pass on to our children as part of their inheritance. Recognize it for what it is. These results are right out of the liberal play book for Redistribution of Wealth. I fear how much more our great nation can handle before the White House Crowd causes damage beyond repair. Is anyone listening on the Republican side of the aisle? John McBaine

November 28 2010 at 12:32 AM Report abuse rate up rate down Reply

why wast good money on g m i have already invested 5250.00 in my wifes ira account it is worthless the only ones making money will be the government ant the unoins and the banks does this seem at all familiar to anyone out there.

November 16 2010 at 5:22 PM Report abuse rate up rate down Reply

We sure don't need a china company buying GM> Another obama idea to sell our country out. He needs to get out of office and leave our country with his dysfuntional family.

November 15 2010 at 9:38 AM Report abuse rate up rate down Reply

GM may have underpriced its IPO deliberately to ensure enough private sector interest that would reduce the government's holdings to a minority, forty percent interest from its current six-one percent. That would give the new GM greater freedom to boost salaries and pay bonuses to executives for those same old shop worn reasons repeated in annual reports by every corporation, "To attract and hold talent of the highest quality and keep their management's compensation on par with that of its competitors." Thus, the upward salary spiral begins again.

November 15 2010 at 8:56 AM Report abuse -1 rate up rate down Reply

Whenever people talk about the Government Motors BAILOUT of $60 BILLION, they point out that FORD did not receive any bailout money. That's only partially correct. While they didn't receive any LOANS that had to be paid back, they actually were given a BIG FAT GIFT OF $8 BILLION from us taxpayers to "study energy efficient vehicles, e.g., hybrids" about the same time GM got their loans. Also, Ford's Credit group got a couple of BILLION to help them finance cars during the "dark days" of the industry. Unfortunately, the entire auto industry was given Government-fueled mad money during this period.

November 15 2010 at 8:27 AM Report abuse rate up rate down Reply

If you want to imvest in Obama and the unions--then buy their stock

November 15 2010 at 7:33 AM Report abuse +2 rate up rate down Reply

Go GM Go, make a ton of money so you can pay us back.

November 14 2010 at 11:38 PM Report abuse +2 rate up rate down Reply

Excessive demand? I guess that is why GM has been courting China and the Middle East.

November 14 2010 at 9:41 PM Report abuse +1 rate up rate down Reply

loose everything once on GM stock..... Shame on GM. Loose everything twice on GM stock.... Shame on me. Soory GM one SCREWING from you bankruptcy was enough. Now a new IPO and no consideration for your old investors.... WOW I don't know how much more of a legalized crook you can become.

November 14 2010 at 9:23 PM Report abuse +2 rate up rate down Reply

The worst thing for this country and parts of the world right now is these huge companys spending tons of money lots of investors investing and these huge companys hiring tons of people back fast. all this will do is create and adverse affect that will drive this country deeper in debt and cause inflation to raise to a killer % and distroy the American buck even more especially over seas. A country like this has to come out of this with baby steps and for a long time or it will implode within. The way the USA buck works here and around the world a fast ramp up would distroy any chance of even getting out of this mess.

November 14 2010 at 9:00 PM Report abuse -1 rate up rate down Reply