Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Analysts and Insiders Wave Caution Flags After $20 Billion GM IPO

Companies / US Auto's Nov 19, 2010 - 05:48 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleJason Simpkins writes: General Motors Co. (NYSE: GM) yesterday (Thursday) raised $20.1 billion in an initial public offering (IPO) that moves the company closer to paying back the taxpayer funds it received in a bailout last year.

However, GM's journey doesn't end there. Even after all of the IPO money changes hands, the company will still owe the federal government more than $26 billion. And the challenges that drove the company into bankruptcy to begin with – union payouts, tougher competition, and higher gas prices – are still relevant.


Ford Motor Co. (NYSE: F), Honda Motor Co. (NYSE ADR: HMC), and Toyota Motor Co. (NYSE ADR: TM) remain as well, having avoided bankruptcy all together.

Indeed, GM officials are excited to have reached such a significant milestone since filing for Chapter 11 bankruptcy protection on June 1, 2009, but they have to keep their eyes on the road ahead.

"We have to celebrate on the run here," GM North America President Mark Reuss told Reuters. "It's a big day to become a public company again but we have got to just hit the ball out of the park here every day on product."

GM's offering of $4.35 billion of preferred shares and an overallotment option could boost the total amount raised to $23.1 billion – making it the largest IPO in history. However, GM stock would have to rise considerably for the company's stakeholders – which include the U.S. Treasury, United Auto Workers union (UAW), and Canadian government – to recover their investments in the company.

The IPO will return as much as $13.6 billion of the U.S. Treasury's $49.5 billion investment, slashing the government's stake in the company to 37% -- 33% with the overallotment provision – from 61%. The option would increase the number of shares offered by the Treasury by 14.3 million.

The offering's underwriters – which include JPMorgan Chase & Co (NYSE: JPM), Morgan Stanley (NYSE: MS), Bank of America Corp. (NYSE: BAC), and Citigroup Inc. (NYSE: C) – have 30 days to exercise the overallotment option.

The Treasury offered about 360 million shares in the IPO at a value of $33 a share. That means it will have to sell its remaining shares at an average of $53 to recoup its entire investment.

Still, at $33 a share, the IPO priced higher than initially expected and generated a significant amount of investor interest, paving the way for a government exit.

"General Motors' initial public offering marks a major milestone in the turnaround of not just an iconic company but the entire American auto industry," said U.S. President Barack Obama. "Through the IPO, the government will cut its stake in GM by nearly half, continuing our disciplined commitment to exit this investment while protecting the American taxpayer."

President George W. Bush first rescued GM with a $13.4 billion bailout, but it was the Obama administration that agreed to add another $36 billion as the company went through bankruptcy restructuring.

"President Obama believed in GM and invested in an American company with American workers," UAW President Bob King told The Detroit News. "There wouldn't be a General Motors today without President Obama's leadership."

The UAW healthcare trust fund holds 17.5% of GM and sold 102 million of its shares in the IPO and could offload another 2.7 million through the overalottment option. The trust's stake in GM is set to drop to 14%, or 13% with the option, from 20%.

The Canadian federal and Ottawa and Ontario governments owned a combined 11.67% stake in GM when the company went into bankruptcy. That stake was reduced below 10% following the sale of 35 million shares through the offering.

Canadian Industry Minister Tony Clement and Finance Minister Jim Flaherty have said they're in no hurry to sell anymore shares at this time, since the stock may be worth more in future.

Additionally, Canadian Auto Workers (CAW) union president Ken Lewenza has encouraged the governments to keep some of their GM shares as leverage.

"The best choice for taxpayers and Canadian workers would be for government to retain a significant portion of its shares, to help ensure that the company maintains its Canadian manufacturing footprint and preserves Canadian jobs," Lewenza said in a statement.

Conversely, political pressure and a public backlash against big government in the United States have accelerated the U.S. government's exit from GM.

GM stock rose $1.19, or 3.61%, to close at $34.19 in its inaugural day of trading. The shares traded as high as $35.99.
Money Morning Contributing Writer Jack Barnes said in a special report on Thursday that investors should consider buying GM shares at a value under $35.

"The company that is being brought back to the market is better prepared to be an international manufacturing powerhouse than its pre-bankruptcy predecessor," said Barnes. "Will it be the largest or the best ever again? I don't believe so. However, that does not mean it won't be a successful equity investment for a patient investor."

Autoparts Manufacturers Catch a Tailwind
GM shares weren't the only equities that got taken for a ride yesterday. Shares of GM's foreign competitors and auto supplies posted big gains as well.

Toyota stock rose 2%, Honda rose 3%, Audi rose 1.5%, and Volkswagen AG (PINK: VLKY) surged 4.3%. Autoparts manufacturers also had a good day: Magna International Inc. (NYSE: MGA) jumped 1.43% and Tenneco Inc. (NYSE: TEN) topped 4%.

Still, analysts were wary of the rebound.

"I was more optimistic on auto parts companies in 2009. That was the time to get in," Morningstar analyst David Whiston, told CNNMoney. "Many companies were trading at absurdly low prices then. Now, they all look pretty expensive."

Brian Sponheimer, an analyst with Gabelli & Co., said it's unfair to lump all auto-suppliers together and that much of the stock gains in 2010 are based on fundamentals.

"What is happening this year is that suppliers, for the most part, were able to nimbly restructure their balance sheets and cut costs," Sponheimer told CNN. "As a result, many of the companies have reached a level of profitability that was impossible in 2008 when auto sales were slumping."

Auto production globally should rise significantly over the next few years thanks to a rebound in the United States and strong demand from emerging markets like China. Worldwide auto sales could increase from an estimated 68 million this year to as much as 86 million to 88 million by 2015, according to Sponheimer.

"There may be some speed bumps along the way but I have tremendous confidence in the auto parts suppliers," he said.

[Editor's Note: In a two-part investigative series that appeared in June 2009, Money Morning predicted that General Motors would rebound and become a U.S. investment success story. We even correctly predicted many of the catalysts.

If that's the kind of market intelligence you demand, and you wish to receive it on a regular basis, then The Money Map Report is for you.

This monthly advisory service - an affiliate of Money Morning - employs many of the same experts whose columns you read here each day. The difference is that The Money Map Report's straight investment analysis. Our writers use proprietary money-flow indicators to identify and isolate the most timely profit opportunities you'll find anywhere.

For more information about The Money Map Report, please click here.]

Source : http://moneymorning.com/2010/11/19/...

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in