Largest Ever – Is GM’s IPO Political or Practical?

 

Aug. 19, 2010

A leading expert on initial public offerings, Francis Gaskins, is not wowed by General Motors’ IPO – to say the least. That’s despite GM being profitable in the first two quarters of 2010. Its Q2 sales of $33.2 billion led to a $1.3 billion profit.

In filing the IPO, the company is anxious to return to Wall Street by shedding its nickname, “Government Motors.” The manufacturer’s demise resulted in an unpopular bailout and the second-largest industrial bankruptcy in history.

GM’s bid to return to the New York Stock Exchange followed a 700-page document filing at the U.S. Securities and Exchange Commission. GM plans to use the ticker symbol “GM.” It also hopes for a listing on the Toronto Stock Exchange. But the ticker symbol hasn’t been determined.

To fully pay back taxpayers and all stakeholders, GM’s IPO would probably have to raise$70 billion. The government has a 60.8 percent stake in GM after giving the company $50 billion in 2009. The United Auto Workers Union has a 17.5 percent ownership. But $2.1 billion in preferred stock is owned by the government and will not be included in the IPO.

Widely respected for his views, Mr. Gaskins gives the IPO a thumbs-down. He publishes IPOdesktop.com, which is called “Forbes Best IPO Site.” His Twitter account: www.twitter.com/ipodesktop.

His succinct tweet: “No rational reason to value GM’s IPO more than Ford. Implies big loss to taxpayers.”

Far from being a mere harsh critic, Mr. Gaskins is scholarly, one of the nicest people I know, and is even artistic as a violinist — except he doesn’t fiddle around in an IPO analysis.

The Wall Street Journal reports 10 investment banks will implement the IPO – historically, the largest group of financial institutions ever in a U.S. IPO.

The newspaper reports the banks include: Morgan Stanley, J.P. Morgan Chase, Bank of America Merrill Lynch, Citigroup, Goldman Sachs Groups, Barclays Capital, Credit Suisse Group, Deutsche Bank, RBC Capital Markets and UBS.

Each is reportedly providing as much as $500 million in credit.

My recollection is that GM got into trouble following its weak sales, high material costs, and too-high union wages and pension costs. Many taxpayers and pundits criticized the government’s bailout of GM by calling it an administration payback to union supporters without enough consideration for taxpayers.

Now, questions abound over GM management’s expertise and financial reporting, which are among the reasons Mr. Gaskins isn’t confident about the IPO.

“They don’t know what’s happening,” he says.

What about the IPO’s timing? My sense is it appears the government is pushing the deal in advance of the Nov. election so politicians can escape more criticism of the unpopular bailout.

If asked, Mr. Gaskins says he’d tell the government: “I would say don’t do the IPO.”

Translation: If you are an investor, read the 500+ page IPO prospectus and do your due diligence. This IPO appears more political than practical.

P.S. The irony is that GM is now producing some outstanding vehicles, especially Buick. The legendary model’s sales are up 137 percent.

From the Coach’s Corner, to see Mr. Gaskins’ astute analysis on Bloomberg Television: http://bit.ly/dd1LE4.

Disclosures:

• Mr. Gaskins and I are fellow members of Consultants West, www.consultantswest.com, an association of veteran consultants.
• My firm has had multiple GM dealers as valued clients, and has benefited financially by recommendations from GM sales management.