Is GM back behind the profit wheel

November 29, 2010
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Lambert, Edwards & Associates President Jeff Lambert said those in the state’s automotive industry should first breathe a sigh of relief following the initial public offering made by General Motors. Then he said they should cheer the lively response that the formerly bankrupt company’s IPO drew from investors.

“I think it really marks an outward return for the automotive business. There is still work to be done, but I think it’s definitely a good indication. I also think it’s going to be one of the catalysts that a lot of other suppliers were waiting for to see how it performed,” said Lambert, also LE&A’s managing partner.

“There will be a stream — I don’t know how heavy it will be — but there will be a stream of listings and other activity in the automotive and related public markets with the success, frankly, of the GM IPO.”

The IPO turned out to be the biggest in U.S. history as the automaker raised a reported $20.1 billion, which topped the $19.7 billion raised by Visa’s common-stock sale two years ago. GM sold 478 million common shares at $33 each and raised $15.77 billion. The company raised another $4.35 billion from the sale of 87 million shares of preferred stock, roughly $350 million more than many analysts predicted. Sales from the IPO could go as high as $23.1 billion once the underwriters’ overallotment option was determined, in which 13 million shares were offered.

Prior to the IPO, some reports questioned how well GM would do. The company’s shareholders were left holding the bag when it filed for bankruptcy after company executives said it wouldn’t make that move. So reports indicated that a lack of trust could keep sales below GM’s expectations. But it doesn’t look like that was the case.

“Ultimately, it comes down to investors are looking for a return, and trust is a factor of management. Management is obviously an important part, but GM’s ability to turn the business is why the IPO did well and that’s, ultimately, the best indication,” said Lambert, whose firm offers investor relations and corporate communications services for small-cap and mid-cap companies as well as for private firms seeking capital or liquidity.

“What was really a dire situation just a few years ago has now been turned into positive momentum. We’re certainly not out of the woods yet, and it remains to be seen how the company will perform. But it’s been a pretty remarkable turnaround,” he said.

The turnaround, of course, was fueled by the Obama administration’s investment of $49.5 billion into the company, with the Canadian government adding another $8.6 billion to the firm’s coffer. The IPO knocked down the federal government’s ownership in GM from 61 percent to 33 percent, as the U.S. Treasury netted $32.75 for each share sold.

As expected, institutional buyers purchased the vast majority of shares. But GM CFO Chris Liddell said retail buyers, or individual investors, bought the biggest allocation of shares in history for a U.S. IPO.

“You tend to have a larger retail contingent with consumer-product companies and so there tends to be more of a connection. Whether it’s a McDonald’s or a GM, consumers, employees and retirees have a connection to the brand,” said Lambert.

“And frankly, many times the reason retail buyers don’t buy an IPO is because they’re not allowed in, and institutions suck up all the distribution. So I think opening it up to retail was smart and I think they obviously jumped at the chance.”

Even though the GM IPO was a success, Lambert didn’t feel the market will suddenly take off.

“I don’t think it means as much to the broader market as it does to the automotive market and supply chain, where I do think it’s a gateway to additional listings that will occur mostly likely in the first and second quarter,” he said. “But there are a lot of private-equity-owned companies that have been waiting for the right time, and this was a bit of a bellwether.”

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