01/17/2011 05:12 am ET Updated May 25, 2011

GM Boosts IPO Size To Reduce Government Stake

NEW YORK/DETROIT (By Clare Baldwin and Kevin Krolicki) - General Motors Co GM.UL raised the common stock portion of its initial public offering by 31 percent on Wednesday after a surge of investor interest, putting the deal on track to raise as much as $22.7 billion.

The announcement by the top U.S. automaker comes a day after it raised the price range for the IPO and increased the preferred shares on offer by a third to $4 billion.

The revised terms of the IPO could make it the largest stock offering ever in the U.S. market and could take U.S. government ownership of the automaker down to as little as 33 percent from 61 percent.

The moves came after GM received orders worth about $70 billion for the common stock portion of the offering as of late Tuesday, a source familiar with the situation said.

The higher pricing on the GM stock sale represents a step toward minimizing the cost of a $50 billion U.S. government rescue of the 102-year-old company, which had fallen from blue-chip status to bailout target in recent years.

GM now plans to sell 478 million common shares for $32 to $33 each and $4 billion worth of preferred shares, according to an amended filing with U.S. securities regulators on Wednesday.

The automaker had initially filed to sell 365 million shares for $26 to $29 each and $3 billion worth of preferred shares.

If the underwriters exercised an overallotment provision, the IPO could raise $18 billion in common stock and $4.6 billion in dividend-paying preferred shares in GM.

The strong Wall Street reception for GM represents a win for the Obama administration after it chose to restructure GM in an unpopular, 2009 taxpayer-funded bankruptcy that left the automaker with the stigma that it had become "Government Motors."

GM is the first of a slate of auto-related companies -- whose ranks include Chrysler Group LLC; Ally Bank GMACA.UL, formerly known as GMAC; and parts supplier Delphi expected to return to public ownership in coming years.

Auto executives and analysts said the reversal in Wall Street sentiment toward an industry that had been shut out of the credit markets in 2008 and 2009, was a positive sign.

"This will give us a great, great precursor for the Chrysler IPO. I'm delighted; it couldn't have gone better," Chrysler Chief Executive Sergio Marchionne said on Tuesday night.


GM earned $5 billion in the first nine months of 2010 and is on track for its first full-year profit since 2004.

At the same time, the automaker has cautioned that fourth-quarter profit will be lower than the rate of the first three quarters because of vehicle launch costs and a higher proportion of less profitable small cars in its mix of production. GM's European unit also remains unprofitable.

In a road show for investors spearheaded by GM Chief Executive Dan Akerson and Chief Financial Officer Chris Liddell, the automaker has emphasized both its sharply lower costs and its exposure to key growth markets like China.

"Anyone doing an IPO might want to use this as a case study -- it's so well-scripted," Jeremy Anwyl, chief executive of auto tracking firm Edmunds, said in a blog posting.

One of the open questions remains whether GM's China partner, state-owned SAIC Motor Corp Ltd (600104.SS: Quote, Profile, Research, Stock Buzz) will participate in the IPO and how much it will invest.

The two sides have negotiated new cooperation in areas such as electric car programs in talks that began this summer. Under a tentative deal, SAIC had agreed to invest about $500 million in GM pending Chinese government approval, people with knowledge of those discussions said.

But one person familiar with the matter said that as of Tuesday, China's Ministry of Commerce had not approved the SAIC investment.

Sources previously told Reuters that sovereign wealth funds in the Middle East and Asia separately had committed a combined $2 billion to GM's IPO.

Treasury will remain GM's largest shareholder after the IPO. The stake held by Canada could fall from 12 percent to just over 9 percent. The retiree health care trust affiliated with the United Auto Workers could see its stake drop from almost 20 percent to 13 percent.

U.S. officials have said it is likely to take until the next presidential term for the government to sell off all of its holdings in GM.

If the IPO prices at $33 per share, the U.S. government will need to see the stock rise by 47 percent to just over $48.50 to break even on its follow-on stock sales over the next several years.

At that level, GM would have a market value of over $90 billion. By comparison, its closest rival, Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz), has a market capitalization of just $59 billion after a rally that has sent its stock up by 65 percent this year.

Obama administration officials have argued that it would represent a kind of success if the White House breaks even on the $30 billion that it committed to GM. Just over $19 billion in funding came from the Bush administration.

The GM bailout spared the automaker from liquidation and saved hundreds of thousands of manufacturing jobs at the company and its suppliers, officials have said.

Underwriters on the GM IPO were led by Morgan Stanley, JPMorgan, Bank of America Merrill Lynch and Citigroup Inc. The shares are expected to begin trading on the New York Stock Exchange under the symbol "GM" and the Toronto Stock Exchange under the symbol "GMM" on Thursday.

(Additional reporting by Soyoung Kim in New York; Editing by Lisa Von Ahn, Gerald E. McCormick, Dave Zimmerman)
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