GM IPO biggest ever

By Chris Isidore, senior writer


NEW YORK (CNNMoney.com) -- General Motors will raise a record $20.1 billion in its initial public offering. The automaker priced its common shares at $33, the upper end of its price range, Wednesday evening.

GM's common shares will begin trading Thursday morning on the New York Stock Exchange under its traditional GM stock symbol. The company will raise far more than the $13 billion it had projected, when it first announced price details for its IPO earlier this month.

Early Thursday morning, GM's partner in China, SAIC Motor Corp., announced it had bought 1% of GM's shares as part of the IPO. China has become the largest market for auto sales in the world, and fast growth is expected to continue there for the foreseeable future. Through its overseas partnerships, GM will sell more cars in China than in the United States for the fist time in 2010.

"All of us at GM are excited about this historic milestone," said GM Chief Financial Officer Chris Liddell in a statement announcing the pricing. "We are especially appreciative of those who stood by us through the toughest times."

The strong demand for GM shares has been building for several days.

On Tuesday, GM raised the price target for its shares to between $32 and $33, from its original estimate of $26 to $29. Wednesday morning, GM announced it would sell 31% more common shares than originally planned, as well as additional preferred shares.

About $11.8 billion of the proceeds from the sale will go to the U.S. Treasury, which has held a 61% stake in GM since July 2009 in return for the $50 billion bailout that helped GM get through its bankruptcy process. Taxpayers' stake in GM will fall to about 33% of the common stock following the sale.

Whether or not taxpayers get back all of the $50 billion will depend upon the price of the stock when the remaining shares held by Treasury are sold.

Between the repayment of loans, the repurchase of preferred shares held by Treasury, and the IPO, GM will have repaid roughly $22 billion of the bailout.

The large sale by Treasury reduces the taxpayer's risk to a drop in GM share price. But it also gives taxpayers less upside if shares rise in value, making it more difficult for the government to get back all that it spent on the bailout. GM shares would have to rise about 65% for the government to break even.

A senior administration official, who did not wish to be identified, told reporters Wednesday evening not he could not project whether Treasury would eventually get all the bailout money back

"We view this as an important, major milestone," he said. "The fact that a company, which ... was given up for dead by many was able to raise a huge amount of capital in one day says obviously good things."

The official said Treasury felt it was appropriate to sell as many shares as the market would bear at this time, even if it reduced the total price that taxpayers would eventually get for the stake.

"We are absolutely committed to getting a return for the taxpayers. We are also committed to exiting as soon as practical," he said.

Treasury and the other existing shareholders are prohibited from selling any additional shares into the market for another six months. It could take years fort the U.S. to completely unwind its stake.

"We're going to sell these shares over time, the official added. "We're not going to make any comment tonight whether the stock will go up down or sideways. That is a matter only the future will reveal."

The pricing would give GM a market value of about $49.5 billion when trading starts. By comparison, rival Ford Motor (F, Fortune 500) has a market value of $58 billion, after seeing its shares climb 67% so far this year.

But GM's value would rise both as the share price climbs and as other shareholders exercise rights to buy additional shares. The other shareholders include the union-controlled trust fund charged with paying retirees' medical expenses, the Canadian government, which also contributed to the bailout, and creditors of the old GM.

There could be as much as $23.1 billion worth of shares sold in trading Thursday, as the investment banks that underwrite the offering have the right to sell as much as 15% more stock. That would increase the proceeds that would go to Treasury and the other shareholders.

According to investment firm Renaissance Capital, which specializes in IPOs, the largest IPO in U.S. history was the $17.9 billion raised by Visa in March of 2008. The largest offering anywhere in the world was the $19.2 billion raised by the Agricultural Bank of China in a Hong Kong offering in July.

The GM $20.1 billion offering does not top Renaissance's rankings because it typically only considers common share sales, not common and preferred combined. GM's $15.8 in common share sales makes it No. 3 in Renaissance's U.S. rankings and No. 7 globally.  To top of page

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