IE 11 is not supported. For an optimal experience visit our site on another browser.

Investors display voracious appetite for GM shares

General Motors's landmark initial public offering has already garnered $60 billion in orders. The robust demand is six times the amount the automaker had planned to raise.
/ Source: Reuters

General Motors Co.'s landmark initial public offering has already garnered $60 billion in orders, a clear sign of healthy investor interest for the massive automaker that was in desperate straits just over a year ago.

The robust demand for shares in GM, which filed for bankruptcy in June 2009, is six times the amount it had planned to raise.

The landmark IPO will likely price around the top end of the $26-to-$29-per-share range and the full overallotment option — additional shares underwriters can sell to help stabilize the stock after it begins trading — will likely be exercised, people familiar with the matter said.

There is also "excess demand" for the $3 billion worth of preferred shares GM plans to sell, the sources said.

The strong response also bodes well for upcoming initial public offerings by other auto industry companies that restructured in bankruptcy, such as Chrysler and auto parts suppliers Delphi and Visteon, analysts said.

Just over a year after a politically unpopular $50 billion bailout that left the U.S. Treasury with a 61 percent stake, GM filed to sell about $10 billion worth of common stock and $3 billion of preferred shares. Such an offering would mark the second-biggest U.S. IPO ever after Visa Inc. and one of the largest globally.

The full overallotment could take the total IPO amount to as much as $15.65 billion. It would also cut the U.S. Treasury's stake to just over 40 percent.

Pricing at the top end of the range would value GM at $43.6 billion based on 1.5 billion common shares. Assuming exercise of warrants that are in-the-money, the share count jumps to 1.8 billion and GM's value rises to more than $52 billion.

For U.S. taxpayers to break even, GM needs a market value of roughly $70 billion.

GM is still accepting investor orders for shares in the IPO and is not expected to close the order books until early next week, the sources said. The sources did not have permission to speak publicly and declined to be named.

Meanwhile, GM is in the final stage of talks to sell equity to Chinese partner SAIC Motor Corp. as part of the IPO and is likely to reach an agreement over the weekend, three sources said. The stake is expected to be less than $2 billion, two of the sources said.

Middle Eastern and Asian sovereign wealth funds have also committed to a combined $2 billion stake, the sources said.

The U.S. Treasury will remain the largest shareholder after the IPO. The governments of Canada and Ontario and the UAW VEBA healthcare trust will also continue to hold shares, leaving some to wonder whether the IPO will allow GM to shed its "Government Motors" nickname.

"The market will obviously price all that in. Some investors are going to say the investment is still worth it now and others will say stay away. I think investors who stay away will probably end up regretting that," said David Whiston, an analyst at Morningstar.

"I think at $26 to $29 the shares look very cheap. I would not be surprised to see the final pricing come up a little bit. My own valuation is currently $44 per share."

GM's IPO is expected to price on Wednesday. The shares are expected to start trading on the New York and Toronto stock exchanges on Thursday.