GM raises $20 billion in IPO

General Motors Co. raised more than $20 billion selling common and preferred stock in an initial public offering that reduced the U.S. government to a minority shareholder.

GM’s owners, including the U.S. Treasury, sold at least $15.8 billion of common shares at $33 each, making it the second-largest U.S. IPO on record after Visa Inc.’s $19.7 billion sale in March 2008, a statement showed. An overallotment option and a sale of preferred shares may boost the total raised to $23.1 billion, more than the $22.1 billion sold by Beijing- based Agricultural Bank of China Ltd. in the largest IPO of common stock in history.

The offering from GM came 16 months after it emerged from bankruptcy and brings Chief Executive Officer Dan Akerson closer to his goal of returning the $49.5 billion the automaker received in a taxpayer bailout last year. The Treasury, which is taking a loss on its portion of the sale, will break even only if the shares climb more than 60 percent, Bloomberg data shows.

“It’s pretty hard to be anything but positive,” said Uri Landesman, who helps oversee about $500 million as president of New York-based hedge fund Platinum Partners LLP. The IPO “shows you that there are people who are very enthusiastic. People think that this is a viable company,” he said.

‘Very Patient’

GM’s common shares will be listed on the New York Stock Exchange under the ticker GM tomorrow, the company statement said. It will trade on the Toronto Stock Exchange under the ticker GMM.

The Treasury needs to sell all of its GM shares at an average price of $43.67 to break even on its investment, data compiled by Bloomberg show.

“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 Inc. in Short Hills, New Jersey. “GM will really have to hit the ball out of the park in the next couple of years.”

The Treasury offered about 358.5 million shares in the IPO, about 95 million more shares than initially planned, and the United Auto Workers’ retiree health-care trust sold 18 million more, according to GM’s regulatory filings. The overallotment option increased by an additional 14.3 million shares offered by Treasury and 2.7 million by the UAW trust.

Treasury’s Stake

The IPO would lower Treasury’s stake to 37 percent, or 33 percent with the overallotment option, from 61 percent, the filings showed. The UAW trust’s holdings would drop to 14 percent, or 13 percent with the option, from 20 percent.

GM’s IPO “is an important step in the turnaround of the company and for our work to recover taxpayer dollars and exit this investment as soon as practicable,” Treasury Secretary Timothy F. Geithner said in a statement. “It is now widely recognized that the taxpayers’ investment not only helped save jobs during the worst economic crisis in a generation but also gave the auto industry a solid foundation on which to build.”

While the Treasury increased the number of shares it had originally planned to sell, Canada and Ontario left their portion of the offering unchanged. Canada will recover more of its investment in the bailout than if it sold more shares in the IPO if GM shares rise. GM boosted its offering price to as much as $33 on Nov. 16, from $26 to $29.

Relative Value

At $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. Dearborn, Michigan-based Ford Motor Co. trades at 8.1 times analysts’ estimates for 2010 profit, the data show. Ford has been the world’s most profitable automaker this year through September.

GM, which lost $82 billion from 2005 to 2008, was valued at an average of 10.3 times profit from 2000 through 2004, monthly data compiled by Bloomberg show. Ford traded at an average of 13 times earnings in the same period.

GM reported third-quarter net income of $2.16 billion last week, bringing its earnings this year to $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 on a Nov. 10 conference call.

“The way they performed in the third quarter, GM is on a trajectory to reaching a breakeven point for taxpayers,” Anant Sundaram, a professor at Dartmouth College’s Tuck School of Business who studies corporate valuations, said in a telephone interview. “My sense is $36 at the end of the first day is not at all unreasonable” for GM’s shares, he said.

S&P 500 Index

The automaker sold shares after the Standard & Poor’s 500 Index rose to a two-year high this month on speculation that the U.S. economy won’t slip back into a recession. The benchmark gauge for U.S. equities fell for the fourth straight day yesterday, the longest losing streak since August, before closing little changed today.

The Kuwait Investment Authority may buy a stake in GM of 1 percent or less, one person familiar with the deal said yesterday. Shanghai-based SAIC Motor Corp., GM’s partner in China, probably will be among the buyers, three people familiar with the plans said last week.

Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. led the IPO that includes 35 underwriters, according to a GM filing with the Securities and Exchange Commission. Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc. and Royal Bank of Canada were also listed in the prospectus.

‘So Much Money’

General Motors Corp. filed for Chapter 11 bankruptcy protection on June 1, 2009, after the failure of New York-based Lehman Brothers Holdings Inc. 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.”

--With assistance from Jeffrey McCracken, Cecile Vannucci and Michael Tsang in New York, Jeff Green in Southfield, Michigan, Rebecca Christie in Washington and Greg Quinn in Ottawa. Editors: Daniel Hauck, Kevin Orland.