Government Motors Shortly Will Be a Little Less SoBy Doron Levin August 19, 2010
After a bit of fumbling and a few false starts, General Motors Co. issued its prospectus for common stock on Wednesday afternoon, conveying an impression that the automaker's leadership remains in a state of confusion and turmoil that - for GM's sake - must finally settle down.
Selling stock, especially an initial public offering following a bankruptcy, is largely a test of public confidence in a company's management. On September 1 GM gets its fourth CEO in 18 months, Dan Akerson, a board member and seasoned executive with no experience managing in the auto business. His appointment to the top job seemed almost an after thought to last week's earnings announcement. GM's prospectus highlights Akerson's lack of experience in automaking, as well as CFO Chris Liddell's lack of experience in automaking, as "risk factors." In other words: buyers beware.
Alan Mulally, Ford's CEO, also had no automaking experience when he left Boeing to join Ford in 2006. By all accounts he's learned quickly, changed the culture of Ford and guided a failing automaker back to its feet in a very rough economy. Mulally has had extraordinary success running a Detroit automaker, perhaps other outsiders can do so as well. Buyers of Ford shares surely have to be believers in Mulally.
GM will try, according to press reports, to place much of the stock being sold by the U.S. Treasury in the hands of so-called "cornerstone" investors, which means banks and institutions that agree to buy large positions they would hold until true investor demand to own "the new GM'' can be gauged. Lots of retail investors got burned on GM stocks and bonds over the years as company skidded down the road to Chapter 11 - many will choose to avoid getting burned a second time.
The stock sold by the U.S. Treasury won't raise a penny for GM. The series B preferred shares included in the prospectus, by contrast, brings in new money, which will be available to spend on developing new models, replenishing underfunded pension obligations and rehabilitating GM's broken and loss-making European operations.
The true winners in a successful initial public offering of GM stock, when it takes place in the coming weeks, are President Barack Obama and the Democratic Party. With elections around the corner and voters dissatisfied with the state of the U.S. economy, he will be able to declare credibly that the U.S. saved jobs and an important employer with the taxpayer's investment of $85 billion. That sum will be partially repaid as investors buy GM shares now held by the U.S. - an achievement to be bragged upon in campaign speeches. But only in a few years, if GM's recent financial success proves sustainable, will we know whether the Obama administration's investment has stood the test of time.