GM, China's SAIC Partner for New Powertrain Tech - IPO Implications?

By Bill Visnic August 18, 2010

Longstanding partners General Motors Co. and China's SAIC Motor Corp. Ltd. established a venture this week to develop a new 4-cylinder engine family and a dual-clutch automated-manual transmission.

GM and SAIC powertrain joint-venture signing.jpgThe timing of the announcement may be unintentional accidental, but leaves industry watchers wondering if SAIC, which already has deep ties with GM in a 13-year relationship, may be looking to invest in the company now that GM officially filed this afternoon the paperwork to begin the process for its initial public offering of stock and the company's return to public ownership.

It might not be coincidence, either, that this latest GM-SAIC tie-up comes as GM's filing the S-1 document for the IPO confirms the company will issue preferred shares alongside the common shares that will make up the bulk of the offering. Some have speculated the issuance of preferred shares will facilitate and even incentivize purchase by interests other than financial institutions and other "conventional" investors.

Preferred shareholders typically enjoy a variety preferential treatments in respect to investment itself, but most important, perhaps, in the case of the GM offering, preferred shareholders often also wield more power in matters such as determining representation on the company's board of directors.

Also attractive is the fact the value of preferred shares typically is not diluted by stock sold in the future at a potentially lower price.

In any event, GM's issuance of preferred shares raises the possibility of meaningful ownership by politically sensitive interests ranging from foreign investors to organized labor. With the already supercharged American sensitivity to the government's majority ownership of GM, overseeing the process of the IPO and its eventual outcome is a potential minefield of politically undesirable possibilities.  
SAIC Increases Profile

Analysts in China, and even SAIC's chairman himself, did not rule out the possibility of taking part in GM's IPO - through purchase of either common or preferred stock.

"The GM-SAIC partnership is the most successful one in China's auto industry. There is a big chance that SAIC may take a stake in GM and bring their relationship to the next level," Sheng Ye, associate research director for industry consultancy Ipsos' Greater China region, told Reuters.

Meanwhile, at an industry event, SAIC Chairman Hu Maoyuan chimed in: "We cannot comment on whether we will participate in GM's IPO before we study the details of the IPO."

SAIC has taken an increasing responsibility in the management of joint activities between the two companies, in particular when it acquired a controlling interest in the well-established Shanghai GM and with the buy-out last December of 50 percent of GM's ownership of the companies' joint-venture operation in India.

Now, the coming GM IPO offers the potential for SAIC to directly own a portion of GM itself, and not just control of the two companies' far-flung joint Asian operations. It is likely SAIC would choose to own the preferred shares, a position that enables the potential for a greater voice in the governance of GM and at the very least offers certain investment advantages.


Photo by GM


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