GM’s IPO Filing Brings Out the Skeptics

Customers wait to buy GM stock

Customers wait to buy GM stock

It’s what you might have expected: The talking heads are out in force, most proclaiming that GM’s timing is off, its leaders are untested, the market’s not ready, and, of course, the whole thing’s political. They may be right. See some of their quotes here.

General Motors on Wednesday filed for an important public stock offering that would sell both common shares (by GM’s current shareholders, including the federal government, selling about 20 percent of its holdings) and preferred shares to institutional investors.

How will the public and the investor community judge the offering? The Freep’s Tom Walsh pointed out some of its many hurdles, and we’ll explore a few after the break. The critical measures, he says, are investor confidence and the ability of the new GM jockey, Dan Akerson, to get the horse on track and to the finish line.

GM headquartersThe company’s filing prospectus outlined major risks to investors in some detail. Forbes listed 14 “worries” about the IPO—including health care and pension obligations, possible restructuring and bankruptcy of GM’s European operations, high raw material costs and fragile supply chain, too many dealers, and tough competition.

Bloomberg had the talking heads out in force. Among them were Dennis Virag, longtime automotive consultant, who cited bad timing of the IPO and its political motivation. (IPO sales may well begin in November, as do the midterm elections.) Gerald Meyers, former CEO of American Motors, agreed. He complained that the IPO was timed to “support the reelection of the President” and that GM should have waited to get another two quarters of good performance under its belt.

Steven Rattner, who engineered the bailout for the government, said that “the IPO is playing out about as we had expected.” It’s “an extraordinary turnaround” for the company. While the cultural changes at GM are the most important thing they have accomplished, it will take them time to catch up to Ford. Rattner called it a “tricky time” to issue an IPO—meaning the current weak economy and “choppy” market.

A problem cited by everyone was the Whitacre-Akerson succession and the former’s sudden departure (which we discussed here). And the fact that the IPO may be premature, with some saying the public could have used two more good quarters to justify confidence in the company’s performance.

So, the big question is: Would you buy stock in GM when it becomes available if you had extra money to invest?

—jgoods

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