Government Hires NY Firm To Advise On General Motors IPO
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The U.S. Treasury has hired Lazard Freres & Co. to advise the government in preparing General Motors’ IPO (Iinitial Public Offering). The agreement calls for Uncle Sam to pay Lazard Freres & Co. $500,000 a month over the next year for advice given to the government and includes a clause that if no IPO is made in the first 12 months, then the government will pay a reduced amount of $250,000 a month until the completion of an IPO.
The New York-based investment bank will advise the government on the use of “underwriters, brokers, or other capital market advisers for the best means and structure to dispose of such assets.”
Having represented the UAW and advised them on GM’s books before the 2007 contract negotiations, Lazard Freres & Co. already has prior experience with General Motors. The company informed the union that GM’s economic standing was worse than the company was actually letting on.
The IPO would allow the government to divest its 61 percent stake in General Motors in order to recoup (or begin recouping) its investment. The 61 percent stake was converted from $43.3 billion in loans given to the ailing automaker. This was on top of the $6.7 billion that GM paid back to the government last month. In total the government gave $50 billion to GM and CEO Ed Whitacre expects an IPO in late 2010 or early 2011.
Posting a $865 million profit in the first quarter of 2010, GM said its revenue was up by 40 percent and that US sales had risen 17 percent compared to the same quarter last year.
“Certainly over the next year, there’s a possibility we could do an IPO, but the market’s got to be ready, the automobile industry has to continue to improve and we have to continue to improve,” said GM CFO Chris Liddell.
To payoff shareholders, the stock market would have to value GM at over $70 billion. This would be almost double the current value of Ford Motor Company but far less than Toyota’s capitalization of $120 billion.
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