According to unnamed sources, the GM IPO will offer approximately 22% of the company for proceeds of about 10 billion dollars. Shares will be sold at $26 to $29 after a stock split. This puts the company’s value at approximately 50 billion dollars, in the same area as Ford’s market cap. Arguments can be made whether or not GM is worth more than Ford, but there are other more important facts to ponder. Why did Ed Whitacre recently disclose that the IPO would price between $20 and $25, only to see the media hype a higher figure based on leaks that no doubt came from the company itself.
Probably because today is Election Day. The auto bailout is even more unpopular than the stimulis spending or ObamaCare. The pressure is on GM to shed the “Goverment Motors” label.
Anyone with financial market background understands that stock price is meaningless without determining the number of outstanding shares. The numbers multiplied give us the value or market cap of the company. Certainly the major financial network journalists are aware of this, yet no one in the media questioned why a stock price was being estimated without giving the number of outstanding shares. The share price was a meaningless number. I wondered at the time why none of the financial experts questioned this.
We may have been given a clue in the Associated Press article that hit the wires yesterday. The story boasts of a GM offering price that is better than expected, since the expected offering price was between $20 and $25. There has still been no confirmation of what type of stock split will occur before the offering! This number will be made clear, AFTER the elections. GM and its owners, the US Government, can claim a better than expected return even if it is not the true scenario. It seems that political pressures continue to determine the news and actions that come out of GM.
Citing unnamed sources, the Wall Street Journal today reports that the stock split will triple the number of outstanding shares, but the public will not know for sure until Election Day is over.
It turns out that another figure can be derived for the new GM market cap by calculations based on the GM bonds. Speculation has driven the bonds up to 35 cents on the dollar. Based on the equity distribution bondholders are expected to receive, GM market cap should be in the area of 65 billion dollars. So, either the IPO is not going to do as well as expected based on bond pricing or the current estimates from sources are too low. There should be more clarity on the IPO pricing within the next few days.
There are many reasons for the American people to be concerned with actions by General Motors and our government that may be based more on politics than on the best interest of taxpayers (whose money bailed out GM) and GM creditors. GM’s pre-election leaks will do nothing to address this concern, especially when their projections turn out to be fanciful.
Mark Modica is an NLPC Associate Fellow and a spokesman for GM Main Street Bondholders.
GM’s Stagemanaged IPO (Investor’s Business Daily)