GM Raises Share Price for Public Offering; Ford Hits New HighBy Michelle Krebs November 16, 2010
General Motors executives apparently have done a stellar sales job in convincing investors to buy its new stock: it has raised the estimated price of shares to be issued in its initial public offering later this week.
GM said Tuesday it expects the stock to sell for between $32 and $33 per share for the 365 million common shares to be issued, up from the previous estimate of $26 to $29 per share. The higher price puts the total offering at $12 billion, making it the second largest in history behind Visa's at nearly $20 billion in 2008.
The automaker also increased the proposed size of its Series B mandatory convertible junior preferred stock offering of 80 million shares from $3 billion to $4 billion.
The higher share price indicates strong demand for GM's new stock; it may also reflect increased confidence in the economy in general and the auto industry specifically.
Boding well for GM's new stock -- or riding the wave of -- is Ford's stock, which is selling at prices not seen in nearly eight years. Ford stock closed at $17 a share on Monday, its highest closing since Jan. 8, 2004, according to Bloomberg News. Ford's share price has risen 70 percent this year, including a 30 percent hike since Oct. 1, Bloomberg noted.
Indeed, Detroit automakers have demonstrated they have reduced costs to the point that they can make money at the bottom of the sales cycle. Conversely, that suggests that if they remain disciplined in cost containment, they can make substantial amounts of cash at the top of the cycle.
In a year when U.S. auto sales will be only somewhat above 11 million, Ford has earned profits of $6.4 billion so far this year. GM has made $4.2 billion. Chrysler, though it is losing some money on a net basis, is showing positive cash flow and operating income on the plus side.
Among the purchasers of GM's new shares is expected to be its partner in China SAIC, which is to acquire about 1 percent of the shares for $500 million. Other foreign investors are expected to purchase at least $1 billion worth of the new GM shares.GM's higher share price would be welcome news for American taxpayers, who provided the automaker with some $50 billion in return for 61 percent ownership to get out of Chapter 11 bankruptcy last summer. In total, the U.S. government has invested $82 billion in the entire U.S. auto industry.
Former Obama Administration car czar Steve Rattner told members of Detroit's Automotive Press Association Monday he is optimistic that U.S. taxpayers will get nearly all of their investment in GM back but for an amount less than $10 billion, down from his previous estimate of $10 billion to $20 billion.
Bloomberg calculates that American taxpayers will break even only if the shares climb at least 50 percent. At $33 per share, the sale would give GM a market value of nearly $50 billion; Ford's is $59 billion, according to Bloomberg.
The final numbers on GM's stock price are expected on Wednesday. GM CEO Dan Akerson reportedly will ring the bell at the New York Stock Exchange Thursday, the day GM's stock -- once the world's most traded -- begins trading again after a 17-month hiatus that included last summer's Chapter 11 bankruptcy filing.