Sept. 23 (Bloomberg) -- General Motors Co. will probably seek to raise $8 billion to $10 billion in an initial public offering in November, a smaller sale than the automaker originally targeted, said two people familiar with the matter.
The U.S. Treasury Department, which owns 61 percent of GM, is more interested in fetching a higher share price to eventually recoup its $49.5 billion investment than in cashing out a bigger portion of its position, said the people who asked not to be identified because the discussions are private.
A larger deal at a lower price would place more pressure on the government to win higher prices in future offerings, the people said. GM and its investment banks have been considering a deal as large as $16 billion, people familiar with the plans said in August.
“They’re taking a more sober view,” said Joe Phillippi, principal of AutoTrends Inc., a consulting firm in Short Hills, New Jersey. “The real question is what’s the price? There are questions in people’s minds about the market and the world’s economies.”
Chairman Ed Whitacre, who handed CEO duties to Dan Akerson on Sept. 1, had favored an IPO that would sell as much of the government’s position as possible, the people said. GM’s banks also sought a larger deal because it would generate higher fees.
Noreen Pratscher, a spokeswoman for Detroit-based GM, declined to comment.
Government PositionThe department could offer as little as $6 billion in shares, though that is unlikely because the government and GM want investors to have more shares available for trading, the people said. Later offerings will be used to sell bigger portions of the government’s position, the people said.
GM will split the stock to a price around $20 a share as is routine in many IPOs, one of the people said.
China’s SAIC Motor Corp., which runs a joint venture with GM in Shanghai, is likely to buy a stake of 1 percent or less, the two people said. SAIC would buy the shares to show support and firm up ties with GM. The Treasury Department wouldn’t be willing to sell the company more shares, the people said.
GM shares must be sold at about $133.78, before splits, if the U.S. is to recoup its investment, Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, said in a letter, the Wall Street Journal reported today.
Including dividends and interest GM already has paid the government, the stock must sell for $131 before splitting for the U.S. to break even, a person familiar with the situation said.
Grandpa...chances of our grandchildren being paid back $49.5 billion prior to their retirement...NADA!!
Tim Geithner9/22/10: “TARP is now regarded by many experts as one of the most effective emergency programs in financial history,” Geithner said. TARP was “absolutely instrumental in keeping our nation out of a second Great Depression. That is a major achievement.”
Press Release From TreasuryApril 21, 2010
GM Repays Treasury Loan in Full, TARP Repayments Reach $186 Billion
GM Repayment of Remaining $4.7 Billion in Debt Comes Five Years Ahead of Maturity Date
WASHINGTON – The U.S. Department of the Treasury today announced that General Motors (GM) has fully repaid its debt under the Troubled Asset Relief Program (TARP). GM paid the remaining $4.7 billion of the total $6.7 billion in debt owed to Treasury. The repayment comes five years ahead of the loan maturity date and ahead of the accelerated repayment schedule the company announced last year.
Total TARP repayments now stand at $186 billion – well ahead of last fall's repayment projections for 2010. With this repayment, less than $200 billion in TARP disbursements remain outstanding.
"We are encouraged that GM has repaid its debt well ahead of schedule and confident that the company is on a strong path to viability," said Treasury Secretary Tim Geithner. "This continued progress is a positive sign for our auto investment – not only more funds recovered for the taxpayer but also countless jobs saved and the successful stabilization of a vital industry for our country."
After this repayment, the remaining Treasury stake in GM consists of $2.1 billion in preferred stock and 60.8 percent of the common equity.