General Motors Co. and its government owners disagreed over the price for the automaker’s initial public offering before settling on a range between $26 and $29 a share, according to eight people familiar with the matter.
The U.S. Treasury was seeking a split-adjusted price of $30 a share, referred to as the “Obama number” by officials in the administration, said the people, who declined to be identified because the talks were private. At that price, the government could say it recovered all the money spent on GM’s bailout under President Barack Obama, though not what his predecessor put in.
GM and its bankers for weeks had pushed for an IPO price in the low-to-mid $20s to help ensure demand and a significant gain on the first day of trading, the people said. The United Auto Workers retiree health-care trust and the Canadian government, which are also shareholders, sought a $30 offer price as well to maximize their return.
“If you’re a seller, you don’t want to leave money on the table,” said Maryann Keller, president of Maryann Keller & Associates in Stamford, Connecticut. “The Treasury would look stupid if they priced it at $20 and the first day of trading it closed at $29.”
Over the past month, Detroit-based GM and its bankers agreed to a higher offering price range as they watched rival Ford Motor Co.’s shares rise, said two people familiar with the matter. At a meeting in mid-October, the parties settled on $25 to $29 a share. As Ford shares climbed, they boosted the bottom of the range.
Ford advanced to a six-year high yesterday after saying its U.S. vehicle sales rose 15 percent in October. The shares gained 75 cents, or 5.2 percent, to $15.18 in New York Stock Exchange composite trading, bringing the increase for the year to 52 percent. The Dearborn, Michigan-based automaker’s market capitalization has reached $52 billion.
At the midpoint price of $27.50 each, GM would have a market value of $41.25 billion, based on 1.5 billion shares that will be outstanding after the offering, according to the company’s filing and data compiled by Bloomberg.
President Barack Obama wants to recover as much of the taxpayer’s $80 billion investment in the auto industry as possible, two of the people said. The Treasury department cut its expected losses to $17 billion in August from an estimate of $28.2 billion a year ago.
“You now have all those U.S. auto companies showing a profit,” Obama said in an interview on the ABC-TV program “The View” in July. “They’ve rehired 55,000 workers. We are going to get all the money back that we invested in those car companies.”
Obama was referring only to the money his administration spent rescuing the auto industry, not the $13.4 billion in aid granted under President George W. Bush, according to the White House.
With a 3-for-1 share split, the U.S. government needs an average share price of almost $44 to get back all of the $49.5 billion it put into the automaker under Bush and Obama. That is based on the $131 a share breakeven level cited by a person familiar with the matter in September.
Including the repurchase of the Treasury’s preferred shares after the IPO, taxpayers will have received $9.5 billion in repayments, interest and dividends from GM since the automaker emerged from bankruptcy in July 2009, according to the Treasury.
Take away those payments and the money invested under Bush and the Obama administration’s figure drops to $26.6 billion. With 912.4 million shares that Treasury currently owns, it can cover that if it gets an average of $29.15 a share. It plans to sell 263.5 million shares in the IPO.
A Treasury spokesman, Mark Paustenbach, and Noreen Pratscher, a GM spokeswoman, declined to comment about the pricing decision.
GM’s underwriters, including Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., pushed in meetings over several weeks for a lower price that would ensure the offering would be oversubscribed and value GM at a lower level relative to earnings before interest, taxes, depreciation and amortization, also called Ebitda, than Ford, said six of the people.
After weeks of negotiations, the Treasury, the UAW and the Canadian government settled with GM and its underwriters on a price that was between what the two sides wanted, said the people.
The Treasury department agreed that it would be beneficial to start with a lower price so the shares would rise on the first day, creating good publicity for the offering, two of the people said. The Canadian government and the UAW health-care trust, which own 11.7 percent and 17.5 percent of GM, respectively, sided with the U.S. Treasury, five people said.
GM’s underwriters argued that the automaker will trade for some time at a lower Ebitda multiple than Ford, said these people, because investors would favor the experience of Ford’s Chief Executive Officer Alan Mulally, who has been with the company since 2006. GM CEO Dan Akerson took over three months ago after serving a year on the automaker’s board.
The Treasury and GM’s banks project that the shares will quickly climb above the $30 level, said the people, because the automaker has more business than Ford in some of the world’s fastest growing economies from China to Brazil.
GM and Ford yesterday reported U.S. sales increases that topped analysts’ estimates in the best month yet this year. GM’s deliveries climbed 3.5 percent to 183,759, when the average of three analysts’ forecasts was for a 6.3 percent decline, while sales at Ford increased 15 percent to 157,935, topping the 14 percent average of six analysts’ estimates.
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