GM Stock Offering -- No Longer a Big Deal. Now a Compact

Does the government really believe the market value of a Large Cap stock is as easy to manipulate as the shares of a Micro-Cap issue in the hands of a Pump-and-Dump brokerage? Or has it dawned on the Obama team that GM is miles away from producing the metrics that are needed to push the stock to the $134-per-share breakeven price the government is sweating for?

U.S. Is Said to Rein in G.M. Stock Offering

By NICK BUNKLEY and MICHAEL J. de la MERCED

September 23, 2010

DETROIT — The initial public stock offering by General Motors will be smaller than previously suggested, and the federal government will most likely sell a relatively small portion of its 61 percent stake in the company, according to people with knowledge of the preparations.

To fetch the highest possible price for the government, G.M. is planning an overall offering of stock valued at $8 billion to $10 billion, which is lower than previous internal targets, according to the people, who spoke on the condition of anonymity because of restrictions on public comments before an offering.

Earlier, there were suggestions the stock offering could rival the largest in United States history, when the credit card giant Visa raised more than $19 billion in 2008. G.M. and its bankers had been pushing for the largest possible offering because that would mean higher fees for the bankers and a larger pool of investors for G.M.

But the Treasury Department has made it clear to G.M. and its underwriters that the government is more interested in setting the highest price possible for the stock rather than maximizing the size of the offering. While both G.M. and the Treasury still hope to reduce the government’s stake in the company to less than 50 percent and rid the company of its Government Motors nickname, that goal may not be met, one of the people said.

The market for initial public offerings has been weak this year, causing concern by Treasury officials that the G.M. stock sale would struggle if it were too large.

Auto analysts are increasingly projecting that G.M. shares could be priced high enough for the government eventually to get back most or all of its remaining $43 billion investment in the automaker. But everyone agrees that will take years.

The offering, which is expected as early as November, will set a benchmark for the stock’s value.

In order to recover all of the government’s investment, the Treasury would have to sell its 304 million shares at an average price of $133.78 a share, before any splits, according to Neil M. Barofsky, the special inspector general for the Troubled Assets Relief Program of the Treasury.

Mr. Barofsky cited that figure in a letter last month to Senator Charles E. Grassley, Republican of Iowa, who asked Mr. Barofsky to audit the stock sale.

In the letter, Mr. Barofsky pledged to review G.M.’s stock offering after its approval by federal regulators to ensure that it produced “the highest return for the American taxpayers.”

The price cited by Mr. Barofsky might not be unrealistic, said David Whiston, an automotive equity analyst with Morningstar in Chicago. Mr. Whiston said on Thursday that a G.M. share could be worth $134, though he believed it would sell for less than that.

He said that G.M., after last year’s government-sponsored bankruptcy, had made changes that would help it thrive as demand for new vehicles recovers from today’s levels, which most industry experts consider to be unsustainably low.

“It really is a new G.M.,” Mr. Whiston said. “The cynics of this deal, I don’t think they really understand the billions of cost savings that G.M. has made.”

G.M.’s stock peaked in April 2000 at $94.63 a share.

Although President Obama has said he wants the government to divest as quickly as practical, the Treasury is expected to sell off its interest over at least two to three years. That would allow it to take advantage of increases in the value of its shares, assuming G.M. operates profitably.

“If G.M. continues to improve and the industry continues to improve, they have a shot at getting it all back,” said Michael Ward, an analyst with Soleil Securities.

There is considerable interest about the G.M. offering among potential investors, and the sale is likely to do well, Mr. Ward told members of the Society of Automotive Analysts on Thursday in Southfield, Mich.

“Wall Street is going to be in love with General Motors,” he said.

The size and the price of the stock offering have not yet been decided, the people with knowledge of the preparations said. But the Treasury intends to reserve a large portion of the stock for retail investors.

As part of that push, G.M. intends to split the stock so that it is priced about $20 to $25 a share, these people said.

The Treasury has also declined to set specific limits on where the stock will be sold and to whom. In a statement last week, the Treasury said it expected the bulk of the stock to be sold in North America.

The government would not expressly restrict sales to foreign buyers, these people said, but they added that acquisitions by foreign investors would be limited.

In a related matter, G.M. filed an amended version of the registration paperwork for its offering with the Securities and Exchange Commission on Thursday, but it did not reveal details.

The filing included a letter to the Treasury in which company executives committed to using “commercially reasonable best efforts” to manufacture at least 1.6 million vehicles in the United States this year and an increased number in each of the next four years.

The figures are 90 percent of what G.M. had previously agreed to produce under its loan agreements with the Treasury.

The letter also says that AmeriCredit, a subprime financing company that G.M. is buying, plans to sell its private plane in accordance with restrictions placed on companies that received aid from the Treasury’s bailout program.