GM to Expand IPO by 31% - Analyst Blog

General Motors (MTLQQ), a.k.a. GM, has expanded its initial public offering (IPO) of common stock, to be held in November 18, 2010, by 31% to 478 million shares from 365 million shares due to strong demand from the investors. The targeted stock price has also been raised to $33 per share from the earlier projection of $26–$29 per share.

Given the new stock price, the expansion of IPO will help the U.S. government recover about half of its unpaid loans to GM. Of the $52 billion in loans extended to the automaker by the government in exchange of a 61% ownership, $6.7 billion has been repaid in April this year. GM intends to repay the remaining $45.3 billion to the U.S. government through the IPO.

If the government sells 478 million shares at $33 each, it would earn about $15.8 billion. In addition, bankers handling the IPO will exercise an option to sell another 72 million shares, which would be valued at $2.4 billion. This would lead to 550 million common shares for sale in the IPO valuing $18.2 billion.

Meanwhile, the company itself will sell $4 billion worth of preferred shares, which will be converted to common stock in 2013. Thus, including the preferred shares, the IPO will be valued at $22.2 billion, about half of the remaining loan amount to be paid to the U.S. government. Over and above this, GM has stated that it would repay $9.5 billion to the government this year, excluding the fund raised from the IPO.

Once the IPO begins, GM will be listed in the New York Stock Exchange (NYSE). While filing the IPO in August this year, GM revealed its plan to list the shares on the NYSE under the ticker “GM,” the symbol under which it traded before entering bankruptcy last year. The automaker also plans to list the shares in Canada on the Toronto Stock Exchange, but the ticker symbol has not yet been determined.

GM's IPO has been awaited for a long time. The company was desperate to shed its government ownership, which has been hurting its public image. However, the U.S. government would continue to own a third of GM subsequent to the IPO.

In the third quarter of the year, GM has topped both its hometown rivals, Ford Motor Co. (F) and Chrysler LLC, by showing a profit of $2.16 billion or $1.20 per share in sharp contrast to a loss of $858 million or 73 cents per share in the year-ago quarter. Operating income was $1.85 billion versus a loss of $1 billion a year ago.

During the quarter under review, Ford reported a profit of $1.91 billion while Chrysler posted a loss of $84 million. In North America, GM earned $3,005 per vehicle due to its effort to boost truck output during the summer. In contrast, Ford earned $2,710 per vehicle and Chrysler earned $593 per vehicle in the region.

GM's profit was fueled by the company's turnaround performance in North America, which had been witnessing substantial losses earlier, and impressive growth in sales volume in GM International Operations segment.

 
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