Hide your kids, hide your wife, and hide your husband. News and further developments surrounding GM’s impending IPO continue to leak out and this time, it concerns The U.S. Treasury. According to reports, the Federal financial arm has recently voiced concerns about foreign investors potentially buying too many shares in our favorite automaker. Because of the issue, the Treasury is considering limiting foreign investments in General Motors.

Now before we let out our collective gasp, we have to remember that the U.S. Treasury is still The General’s primary shareholder. Apparently, the Treasury’s primary reason for concern is the overarching political fallout. Foreign investors often hold large amounts of shares of U.S. companies. Usually, this is done to stabilize IPOs and increase prices through greater demand. If this scenario plays out for GM, then taxpayers could be frustrated that $50 billion of their money was put into a company only for foreign entities to buy up large shares of The General… and eventually benefit financially.

The other side of this double-edged-sword is that taxpayers would probably be able to sell more shares at higher prices without limits on investments from abroad. This makes the scenario quite difficult for the Treasury, as it must chose between getting maximum value for shareholders (taxpayer and foreign investment) or protecting the same shares from international takeover. The largest factor that will make the latter situation a little bit easier to unfold is the final fact that the Treasury is reported to only sell a fifth of its holdings come the IPO. By doing so, it will retain at least part ownership until all of its shares are sold (if ever), selling these at a potentially higher price down the road if there are no restrictions on investment. Whatever happens, this is sure to be a case study for years to come.

[Source: Wall Street Journal via Left Lane News]

This is the week when Dan Akerson officially takes the helm as CEO of General Motors, replacing Ed Whitacre. In hindsight, the timing was fairly predictable, although not many expected it. Whitacre was never intended to lead The General’s charge for the indefinite future, as his task was to restore the company back to profitability and, given the past two quarterly earnings, he has succeeded.

The GM board of directors, on which Akerson has served since July 2009, knew they would need to officially reveal the next CEO. The job required somebody who could successfully market the company to potential investors when it was time for the all-important Initial Public Offering (IPO), something Akerson is more than capable of: he has the attributes that should sit well with the wealthy crowd, given that they didn’t watch their previous shares of GM vaporize through bankruptcy.

Background

At the age of 61, Akerson has had a decorated career. He is a former naval officer, where he earned the reputation for being a results-driven individual. This is a quality GM needs when it comes to attaining our favorite automaker’s goal in the short- and long-term.

Akerson later earned his master’s degree at London School of Economics. He eventually went on to lead telecom giants such as MCI, Nextel and XO Communications. He’s also quite the mover and shaker in the financial investment community with the Carlyle Group, which he has been with since 2003.

Before taking on his position as CEO, he was the managing director and head of global buyouts for the Group. The experience and connections he has gained through working with The Carlyle Group will no doubt aid Akerson in pitching GM stock to first-round investors. The Carlyle Group was ranked as the largest private equity investment group in 2007 (during Akerson’s tenure) and its portfolio of firms employs over 415,000 people worldwide.

In With The “In” Crowd

Akerson’s private equity experience grants him respect in the investment cliques (a.k.a. Wall Street) and brings outside knowledge, point-of-view, and experience – attributes that GM veterans may lack. And while, at the age of 61, he may seem ripe for retirement, he is still young and energetic enough to hang around the halls of the Ren Cen for a while. He is also known to politically lean the conservative side.

Unfortunately, one of the drawbacks of yet another new CEO at GM is employees’ fear of even more change. Many significant shakeups and executive shuffles have occurred within the year GM has exited bankruptcy and another one could be only days or weeks away now that Akerson has take the reigns. However, outgoing CEO Ed Whitacre has vouched for Akerson – claiming he is ready to lead the company and that he already knows GM well, having been a member of the board of directors of the New GM for about a year.

An executive of a GM supplier commented that – above all else – the automaker needs stability in the executive level right now. Hopefully, Akerson can provide this stability and be the last new CEO for the next several years to come.

[Source: Freep]

The U.S. Treasury intends to sell only a fifth of its 304 million common shares as part of the IPO, bringing its ownership stake to less than 50 percent. This means that the Feds won’t dump all of their shares or cut all ties with The General at once. Instead, the Treasury will become a minority shareholder, increasing the chances of seeing a full return on its $50 billion investment in the largest automotive company in the world.

GM expects the IPO to go for as much as $16 billion. This would rank The General’s offering as the second-largest in U.S. history – only behind Visa, which raised $19.7 billion in 2008. The IPO will be led by Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., will include both, common and preferred stock.

The government will only sell common stock while GM will offer preferred shares alongside the IPO. In 2013, the preferred stock will automatically convert to common stock and all owners will be capable of receiving dividends from GM.

General Motors didn’t disclose the number of shares to be sold in the initial offering, or a price for the shares.

Should the IPO be a huge success, it could spur the go-ahead for rumored models, including a Lexus LS fighter from Buick, a BMW 7-Series fighter from Cadillac, as well as many more undisclosed blueprints awaiting launch. The General will also be subjected to more pressure in turning around the unprofitable European business unit.

If nothing else, it’s time to open that online brokerage account you’ve been holding out on. To read The General’s full IPO document, click here.

View Press Release

Breaking down the numbers, we see that the General earned a healthy $2 billion in earnings before interest and taxes (EBIT) with GM North America bringing home $1.6 billion of the purse. GM Global punched in $.7 billion, but GM Europe still suffered a net loss of $.2 billion – which is still an improvement from the $.3 billion loss last quarter.

Vehicles to thank for the company’s recent success include crossovers such as the Chevy Equinox, GMC Terrain and Cadillac SRX, as well as the very successful Buick LaCrosse. Globally, the Chevy Cruze has been pulling through for The General and will most likely add to the success when it is finally launched here in the States in the third quarter. GM’s popularity in China has also played a key role in The General’s second quarter success.

This good news also builds up for a successful IPO, which has been rumored to be filed as soon as tomorrow… or maybe not.

View Press Release

General Motors is working hard at preparing an IPO that will be one of Ed Whitacre’s hallmarks of his time with the company. Our favorite automaker is looking at 2010 to be the year it offers its shares to the public, while at the same time increasing consumer confidence in its vehicles as well as the firm’s financial position. There are numerous factors that dictate the potential IPO and how the public at large will react to it.

The economic situation, the status of the IPO market, as well as terms set forth by investment banks are all primary concerns for GM and particularly for Whitacre. Many of the reservations faced by the GM’s CEO, however, can be put to rest already. JPMorgan Chase & Co. along with Morgan Stanley, won the account to sell GM’s shares for a quarter of the normal rate, with GM paying .75 percent of the sale.

A Seller’s Market

Although selling to public shareholders might prove to be a challenge, GM is in control of dictating terms with representative banks. A smaller market for IPOs means that more banks want to sell GM’s shares, empowering companies (including The General itself) to negotiate the terms of its public offering. GM is looking to leverage this position to increase company recognition, reputation, and even sales. Stock sales might be the number one priority with JPMorgan and Morgan Stanley, but selling Cadillacs, Chevys, Buicks, and GMCs are nearly as important, if not more so. And in an interesting turn of events, GM wants the banks to use the underwriting fee of 0.75 percent to subsidize GM vehicle purchases for the employees of the underwriting companies.

This sort of hardball negotiations are just what Whitacre was going for. As if impressively low fees weren’t enough, Whitacre also wants to see GM’s sales to continue their upward trend, even faced with the possibility of confusing investment banks for marketing firms (or even clients). On the other hand, GM has its own plan and wants to introduce their “ideas as to how we [GM] can use the IPO to reposition GM and its vehicles within the investment community including your firm’s willingness to reinvest any portion of any underwriting fees into the purchase of GM vehicles for your employees and/or company use.”

In fact, doing this plays to GM’s interest in luring the investment community into giving our favorite automaker’s products another look, as evidenced by GM’s possible opening of a Manhattan showroom that would showcase GM’s latest models.

Government Interest

One key incentive in GM’s race to an IPO is to shed some government control. Uncle Sam has retained veto power over GM’s independent selection of the banks and subsequent terms, such as the fees, but this time around, neither required vetoing. At first round of the IPO, GM plans to sell 20 percent of the government’s stake, bringing the Treasury’s ownership significantly below 50 percent (from 61 percent currently).

On the other hand, the government also wants to limit underwriting fees to avoid paying banks bailed out by the government.

Way Forward

As we write this, GM is busy putting together a schedule, size, and marketing methods for the IPO. However, before these things can become important, our beloved automaker needs to carefully monitor its own performance, the economy, and the IPO market. The General wants to file a prospectus within the next month and is hopeful for a November IPO. At between $10 and $15 billion, it could be the second largest IPO in U.S. history.

[Source: Bloomberg Business Week]

The biggest issue is CEO Ed Whitacre’s desire for a $5 billion revolving line of credit that would give our favorite automaker a cushion in the event of a possible double-dip recession, an event that’s being widely discussed in economic circles.

The funds could also be used for expansion and to finance the restructuring of GM’s European division. So far, four banks, including Bank of America, Citigroup, JPMorgan Chase, and Morgan Stanley have pledged $2 billion, with the balance expected to be wrapped up in about a week. The Reuters report didn’t mention Whitacre’s goal to reinstate a captive finance arm before the offering takes place.

Current reports estimate that the initial offering will be in the range of $15 to $20 billion. The U.S. Treasury, which owns roughly 61 percent of GM, plans to sell somewhere between 20 to 24 percent of its stake, or $10-12 billion worth of shares. What’s more, sources say that GM is looking for a broad investor base and would rather cut the valuation on the IPO than delay it.

The GM Authority Take

Of course, we’ll have to wait and see how this pans out, but I wouldn’t be surprised to see the IPO take place in late Q3 or early Q4 2010 than in August of this year. The reasoning behind my prediction is rather simple: today, there’s not enough investor confidence in a company that has been bailed out by the U.S. and Canadian governments only a year ago and has since then had only a single profitable quarter. As Q2 and Q3 come around and GM posts strong results for both quarters, investors will be more comfortable buying and recommending GM stock.

[Source: Reuters]

Our favorite automaker’s market share was a measly 9.6 percent in New York City last quarter compared to 18.7 percent nationwide. According to Experian Automotive, GM held 10 percent of the market in 2009 and 13 percent in 2008. The problem stems from the fact that analysts, portfolio managers, and potential investors – all (arguably) crucial for the success of GM’s IPO – aren’t big customers of The General’s products.

Since holding a weekly business meeting showcasing its newest product is rather difficult and time-consuming, a showroom that would display certain GM vehicles has been brought up. The concept involves getting GM’s best models in front of high-rolling investors, tourists, and trend-setters in a high-fashion New York City environment.

Audi has set up a similar display called Audi Forum on the corner of 47th and Park Ave. The Forum showcases the brand’s models and hosts events (such as keeping the facility open to allow Audi fans to watch the entire 24 Hours at Le Mans last year).

The Audi Forum in Manhattan

The GM Authority Take

This is a great idea, but GM could draw criticism for buying or renting (GM is considering both) pricey New York real estate. GM took some heat a few months ago for giving a Chevy Corvette to Detroit Tigers pitcher Armando Galarraga after a near-perfect game.

Should GM listen to such opprobrium? In the humble opinion of yours truly – absolutely not. If GM feels that the New York showroom will be an effective way of reaching its target demographic in the area, then it should absolutely go ahead with the plan. The question now shifts to the specific products GM should display at its Big Apple super lounge.

[Source: The Real Deal]

The United States Treasury has been under severe pressure to not only divest of its 60.8 percent stake in The General that it obtained last year during our favorite automaker’s bankruptcy, but also to receive a large portion of the $50 billion it spent doing so.

After paying off its initial government loan with interest, GM CEO Ed Whitacre made it a point that he wants to pay back all of the government’s investment, if possible.

The Treasury has hired Morgan Stanley and JPMorgan Chase & Co. as the lead underwriters for the IPO and we’ve received tips that the initial offering will be for a part of the U.S. government’s 60.8 percent stake in GM (rather than the full amount). The fee for handling the sale is expected to be shared among the two banks as well as a few smaller underwriters and could range from $75 million to $150 million – based on the stock sold. According to a U.S. Treasury Department official, this price is lower than most IPOs.

The Treasury also has hired New York investment bank Lazard Frères & Co. to advise it on the stock offering.

Analysts have pegged GM’s shares to be worth between $40 billion and $60 billion once the IPO launches. However, GM must overcome a few important issues before any shares are sold. These include restructuring its European arm Opel-Vauxhall, turning a profit for several consecutive quarters, and finding a long-term solution for a financing arm.

Most recently, top GM executives have received hefty stock-based compensation packages that provide a very direct incentive to make the IPO a runaway success.

Although GM North America reported a profit for Q1 2010, GM’s European operations are still losing money. Bonds that convert to GM shares also fell last week to the lowest price since February 26, 2010. And here’s the latest fact that may be hard to swallow: Whitacre wants to establish a GM lending division (similar to GMAC) before launching the IPO. He also needs to balance the interests of GM as a company with the need to satisfy the government. Whitacre will need to assure the treasury that it will – at the very least – break even.

In addition to GM’s own troubles, the IPO market isn’t in the best shape either, as 32 companies have delayed or withdrawn Initial Public Offerings since April of this year.

That said, every financial institution wants a piece of the IPO action, and five investment banks competed to lead GM’s IPO. Morgan Stanley and JP Morgan Chase won what could be a $12 billion sale. This would be the nation’s second largest IPO in a decade: since 1999, four IPOs have exceeded $5 billion. Visa’s went for $19.7 billion, AT&T Wireless for $10.65 billion, Kraft Food for $8.68 billion, and UPS came out with an IPO of $5.47 billion.

Currently, GM’s equity is about $70 billion and financial firms are expecting a $.47 return on the dollar for bonds issued by the former General Motors Corporation. These bonds will be converted to shares of the current (new) GM Company. For the US Treasury to break even, GM’s value will need to rise to $80 billion. As you can imagine, these circumstances weigh heavily on the timing of The General’s IPO. The company’s profitability, health of the economy, and state of capital markets will also be important factors in its timing.

General Motors repaid the government $6.7 billion in loans plus $600 million in interest and dividends two months ago. Uncle Sam continues to own $42.2 billion of GM plus $2.2 billion in preferred shares.

Would you buy GM’s stock when it becomes available? Talk to us in the comments!

[Source: Automotive News]

Why is GM's Ed Whitacre smiling?

Welly well well… not too long after the government hired a New York firm to prepare General Motors’ post-bankruptcy IPO, the U.S. Securities and Exchange Commission disclosed that the company’s highest ranking officers and executives received over 100,000 total shares of stock estimated to be somewhere in the ballpark of $13 million. Those who have been disclosed that received shares include:

• Chairman/CEO Ed Whitacre: 24,547 shares
• GM North America President Mark Reuss: 25,104 shares
• Vice Chairman Tom Stephens: 50,521 shares
• Vice Chairman/CFO Chris Liddell: 15,979 shares
• Vice Chairman Steve Grisky: 18,063 shares

While it’s been a widely-publicized goal of General Motors to go public as soon as possible, Ed Whitacre has cautioned that an IPO will not happen until he believes its maximum value can be attained. According to some analysts, this could take as long as another year or two. Considering Whitacre now has 24,547 reasons for a successful IPO, it’s easy to understand why.

The GM Authority Take

I understand the logic behind providing GM’s senior management team with this amount of yet-unsold stock. Instead of being awarded bonuses or salary raises, stock is used to compensate for salary cuts and certain lack of benefits. It also provides a huge incentive to make the overall organization a success. But GM’s senior management team isn’t the only one within GM to have taken a cut – there are thousands of other GM employees that were forced to see salary and benefit cuts as well. In all fairness, all of those hard working men and women should also receive the spoils of free shares of the company they have worked so hard to bring out of its darkest period in history. Wouldn’t you agree?

[Source: The Detroit Bureau]