Get Ready for the G.M. IPO, Which is Shaping Up to be the Worst IPO of All Time

G.M. Will Seek Retail Investors – Is that Because of a Lack of Interest by Institutional Investors?

August 15, 2010 – Get out your checkbooks, and get ready for the G.M. initial public offering (IPO), which may be the worst IPO of all time.   G.M. wants to raise $16 billion, which would also make the IPO the largest U.S. IPO ever.  As part of the White House’s political strategy, there is no question that the Obama administration wants the G.M. IPO completed prior to the upcoming mid-term elections in November,  to prove to the American public that the auto industry governmental bailout was a good move.

The IPO will have four lead underwriters, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley.  Conspicuously absent from the underwriter list is Goldman Sachs.  Since all four of the underwriters have been consistently attacked by the White House and Congress as a source of all the country’s economic problems, I can’t imagine that any of these underwriters is happy about the task of trying to sell the G.M. IPO to investors.  One can only imagine the arm-twisting and the behind closed door sessions that took place to get the underwriters on board.  And, I can’t imagine that any of the underwriters’ sales teams or brokers is happy about being told to sell the IPO shares, especially at a reduced commission. 

It’s hard to imagine that any institutional investor would be excited about the prospect of buying IPO shares.  Perhaps, due to the lack of institutional interest in the IPO, G.M. is considering offering 20 percent to 30 percent of the IPO stock to individual investors. Typically a much smaller percentage of IPO shares are allocated to individual investors.

This past week, right before the IPO registration statement was to be filed with the SEC we learned that Edward Whitacre Jr., G.M.’s IPO intended to resign. Not a good sign for a company about to go public. It's uncertain whether G.M.’s board of directors knew that Whitacre was going to resign, or whether at the time that he came on board as CEO he told the board that he wanted out before any IPO.  But it seems that Whitacre’s announcement was not only ill timed, but a surprise to the board. 

The resignation of Whitacre and the naming of Akerson as CEO happened so quickly that it delayed the filing of G.M.’s registration statement with the Securities and Exchange Commission (SEC), which G.M. had indicated was to occur this past week. G.M. has not indicated when the registration statement would be filed, but obviously there is pressure to complete the IPO before the mid-term elections. 

Whitacre is being replaced as CEO by Daniel Akerson who will start next month.  Akerson will be the fourth CEO of G.M. in less than two years.  With four CEOs in two years, G.M. has created an atmosphere of management chaos and crisis, rather than a company that is strongly positioned to go public.  This isn’t providing a level of comfort for potential investors.

Akerson has no background in running an auto company. He joined G.M.'s board just over a year ago as a representative of the U.S. government. Within G.M. he is relatively unknown. But Akerson has a strong Wall Street background and may have been quickly brought onboard with the objective of selling the IPO and making sure that the IPO is successful.   

Given G.M.’s history, questions have already been raised as to how long Akerson will stay on as G.M.'s CEO.  Many investors believe that he will resign once the IPO is completed.  There has been no comment by G.M.

If any other company planning to go public would have made a quick change in senior management right before a registration statement was to be filed with the SEC, the underwriters would more than likely force the company to delay the IPO.  But not G.M.  G.M. is obviously not your normal company going public.

The U.S. government, through its sponsorship of G.M.'s bankruptcy, which occurred last summer, and which included more than $50 billion in government loans, owns about 61% of G.M.

Whitacre said last week that G.M. wanted the U.S.  government to sell its entire stake during an initial public offering.  Whitacre stated, “We don’t like this label of Government Motors.  We want to get away from that.  It turns off customers.  People at G.M. are embarrassed by that.”

How can the U.S.  government cash out of its $50 billion investment through an IPO that is to only raise gross proceeds of $16 billion.  Obviously Whitacre didn’t do the math.  What was he thinking? Maybe Whitacre’s statement, is the reason that he announced his resignation so suddenly.

Does Whitacre think that the U.S. taxpayers would take a major loss on their investment?  This is not politically possible, and something that the Obama administration won’t let happen, especially before the mid-term elections.

With Wall Street under attack by the Obama administration and Congress and being perceived as the root of all evil, more than likely the G.M. IPO will get done, but not for the right reasons.

Author: Jeffrey Friedland