GM roars back with $26 billion initial public offer

General Motors has raised more than US$20 billion ($26 billion) selling common and preferred stock in an initial public offering that reduced the US government to a minority shareholder.

GM's owners, including the US Treasury, sold at least US$15.8 billion of common shares at US$33 each, making it the second-largest US IPO on record after San Francisco-based Visa's US$19.7 billion sale in March 2008, data compiled by Bloomberg showed.

An overallotment option and a sale of preferred shares may boost the total raised to US$23.1 billion, more than the US$22.1 billion sold by Agricultural Bank of China in the largest IPO of common stock in history.

The offering came 16 months after GM emerged from bankruptcy and brings chief executive Dan Akerson closer to his goal of returning the US$49.5 billion the carmaker received in a taxpayer bailout last year.

New Zealander Chris Liddell is the chief financial officer for GM.

The Treasury, which is taking a loss on its portion of the sale, will break even only if the shares climb more than 60 per cent, Bloomberg data shows.

"It's pretty hard to be anything but positive," said Uri Landesman, president of New York-based hedge fund Platinum Partners. The IPO "shows you that there are people who are very enthusiastic".

"People think that this is a viable company," he said.

GM's common shares will be listed on the New York Stock Exchange under the ticker GM today.

The Treasury needs to sell all of its GM shares at an average price of US$43.67 to break even on its investment, Bloomberg says.

"We will only get our money back if we are very patient and if GM performs very well," said Joe Phillippi, principal of consulting firm AutoTrends.

"GM will really have to hit the ball out of the park in the next couple of years."

At US$33 a share, GM is valued at 7.8 times this year's earnings, based on its net income in the first nine months of 2010. Michigan-based Ford Motor Company trades at 8.1 times analysts' estimates for 2010 profit, the data show.

Ford has been the world's most profitable carmaker this year through September.

GM, which lost US$82 billion from 2005 to 2008, was valued at an average of 10.3 times profit from 2000 through 2004, Bloomberg data shows.

Ford traded at an average of 13 times earnings in the same period.

GM reported third-quarter net income of US$2.16 billion last week, bringing its earnings this year to US$4.77 billion.

While GM will have positive earnings before interest and taxes in the fourth quarter, they will be "significantly lower" than the first three quarters of the year, Akerson said.

"The way they performed in the third quarter, GM is on a trajectory to reaching a break-even point for taxpayers," Anant Sundaram, a professor at Dartmouth College's Tuck School of Business.

"My sense is US$36 at the end of the first day is not at all unreasonable" for GM's shares, he said.

The carmaker is selling shares after the Standard & Poor's 500 Index rose to a two-year high this month on speculation that the United States economy won't slip back into a recession.

General Motors filed for Chapter 11 bankruptcy protection on June 1, 2009, after the failure of New York-based Lehman Brothers Holdings in September 2008 froze credit markets and helped cause the longest recession since the Great Depression.

"Institutional investors are so positive about GM because the industry is primed to make so much money as it recovers," said Alan Baum, an analyst for Baum & Associates, an industry consultant in West Bloomfield, Michigan.

"GM in the past wasn't well positioned for that. Costs are now down and their products are being well-received."

CAR SALE
* US$33share price for General Motors float.
* 23b total that could be raised.
* US$49.5b 2009 bailout for GM.

- Bloomberg