General Motors on Thursday filed for a landmark public stock offering that would let the federal government begin selling off its stake in the automaker as well as raise money for GMs turnaround. GM said that it would offer both common stock and preferred stock in the offering,which could begin as early as October,when the Obama administration will be seeking to portray its aid to the auto industry as a success before midterm elections in November. The common shares will be sold by GMs current shareholders,the largest of which is the federal government. It exchanged about $43 billion in aid to GM for a 61 per cent interest in the automaker.
GM will also offer preferred shares,which have a fixed return similar to a dividend,to institutional investors. Proceeds from the preferred shares will be used to finance operations and improve GMs balance sheet. The automaker will not sell any common shares directly,and therefore will not generate any money from them.
GM did not set a price range for its shares,which will trade on the New York Stock Exchange and the Toronto Stock Exchange. For the government to fully recover its investment in GM,the Treasury Department would have to sell its 304 million shares at an average price of about $141 each.
The Treasury is expected to sell enough stock in the initial offering to bring its overall ownership position in GM below 50 per cent,freeing the automaker of the stigma of being called Government Motors,which executives have said is hurting its reputation in the marketplace. GMs 734-page filing said taxpayers would continue to own a substantial interest in us following this offering.
The Treasury,in a statement on Wednesday,said it would retain the right,at all times,to decide whether and at what level to participate in the offering. The statement said the offering would not include the governments preferred GM shares,worth $2.1 billion.
The stock offering has been a top priority both for GMs management and the Obama administration,which orchestrated the automakers bankruptcy last year. Theres always a trade-off between getting out quickly and getting out at the highest possible price, said Steven L Rattner,the former head of President Obamas auto task force. The priority for the government is getting out quickly.
Taxpayers have poured about $50 billion into GM since late 2008,when the struggling automaker was careening toward insolvency. The company has already repaid about $6.7 billion in loans,but most of the rest was converted into equity and can be repaid only by selling those shares.
GM did not specify how many of its 500 million outstanding shares would go on the market at first,saying that would depend on market conditions and other factors. A little more than a year since its bankruptcy,GM has managed to earn $2.2 billion in the first half of 2010. In the four and a half years leading up to the Chapter 11 filing,it lost a total of $88 billion.