General Motors Remains on Track for November IPO

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Researched by Industrial Info Resources (Sugar Land, Texas)--The turnaround at General Motors Corporation (GM) (Detroit, Michigan), or "Government Motors" as it has come to be known since its bankruptcy last year, has been somewhat miraculous. A little more than year after bankruptcy, GM is showing a profit and, despite sluggish sales in the past month, is poised to issue its initial public offering (IPO) in mid-November. Both GM and its major shareholder, the United States government, are banking on this IPO to generate enough cash for GM to begin paying off its massive debt, allowing the company to stand on its own two feet once again.

Estimates are placing the initial stock price at $133 per share, and GM and the government are working out exactly how much stock the government will sell initially as it attempts to be reimbursed for its investment in the automaker. GM owes the taxpayers $43 billion in bailout funds, which were provided to GM last year as part of the bankruptcy proceedings to keep the automotive giant afloat and operating.

GM has announced that it will allow employees, retirees and car dealers to invest in the company when the IPO is released in November. Letters to the workers and dealers went out October 5, informing them of the opportunity to become shareholders in the company. The deadline for registration to take advantage of this offer is October 22. In order to take advantage of the opportunity, they must invest more than $1,000. There are about 600,000 GM workers and retirees in the U.S. and Canada.

The U.S. government, which GM's largest shareholder, has a 61% stake in the company and is expected to sell at least some of its shares immediately after the IPO is released. Exactly how many shares is undetermined at this point in time. GM will not be selling common shares initially, but rather preferred stock, which will act like bonds and pay a dividend. GM is hoping to be able to raise enough money to begin paying down its estimated $27 billion in pension plan obligations.

For the U.S. government, meaning the taxpayers, the break-even price for GM stock appears to be $133.78 per share. With initial estimates placing the IPO right at that amount per share, the government could be paid back almost immediately if it can find buyers for its shares. The U.S. government currently owns 304 million common shares in GM as part of the automakers bailout agreement, as well as $2.1 billion worth of preferred stock. Both the government and GM are hoping that share prices will rise significantly after the IPO, making it easier for the government to recoup its investment and provide the automaker with a much needed influx of cash and stability.

GM has begun investing in its own infrastructure in recent months and is hoping to generate the financing to continue its modernization program. Like the other automakers, GM must modernize and retool at least some of its facilities every year to keep pace with the market and demand. GM will have to maintain this program of investment in the coming year if it wants to maintain the pace of recovery it has managed over the past six months. GM is making a profit this year and should continue to do so while it repays the government and takes care of pension obligations.

GM's recovery is nothing short of miraculous. Upper management, after numerous changes since bankruptcy, has managed to steer the ship in all the right directions and appears to have it pointed down a path to total recovery in the near future. If GM can generate the type of investment it is expecting in the coming months, the future of GM will be virtually assured, provided that the company does not revert to the management style of old, which helped lead them down the road to bankruptcy.

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