Sources familiar with the highly anticipated GM IPO anticipate a government loss for the first offering of stock. That is not to say however, that taxpayers should expect a complete loss. Future offerings could still very well be profitable, depending on how the stock moves in the market. It is expected that a complete divestment could take more than three years, which would push the final determination of profitability into the next presidential term.
The decision to price the shares below taxpayer cost is a common Wall Street practice, as it is determined to be best for IPO”s. It could also help quell investor concerns about slow recovery and flat auto sales, which could lead to positive action in the market, hence even greater profitability on the total investment.
The SEC is currently reviewing GM”s S-1 filing, and the company is planning a two-week road show of pitches to potential investors commencing immediately after the November interim elections.
Analysts and potential investors have projected a market value of between $50 billion and $90 billion; a market value of roughly $70 billion is the break-even point for the government. Thus far, GM has re-payed $6.7 billion to the treasury and returned $700 million in interest and dividends. The government also hold $2.1 billion in perpetual preferred shares of GM, and is left with a current $40 billion investment in common stock.
– By: Stephen Calogera