By on May 31, 2010

The Detroit News reports that the Treasury Department has hired Lazard Frères & Co. as an advisor to GM’s forthcoming IPO sale. And with news of the hiring comes confirmation that GM’s IPO really is coming soon: the investment bank will receive half a million dollars, according to the DetN, but that amount will drop to $250,000 if the IPO isn’t completed within one year. If you’re one of the GM boosters who believes that an IPO will repay all or most of the government’s investment in GM, it’s time to start saving those pennies. You have less than a year now to put your money where your mouth has been.

If you are a GM optimist, you are not alone. Last Friday the Treasury revised its estimated loss on the $85b auto bailout to $24.6b from $28.2b, on the strength of GM’s profitable first quarter, and overall improvement by the domestic automakers. The Congressional Budget Office had previously pegged auto bailout losses at $30b. Total losses on the TARP program that funded the auto sector bailout have also been revised downwards to $105.4b, driven largely by improved valuation outlooks for Citigroup stock.

Lazard’s advising of the Treasury Department on GM’s IPO will include

valuing the government’s assets, offering advice on potential transactions and analyzing alternatives for disposing of the assets

This will help Treasury negotiate one of the toughest decisions in the entire auto bailout: how to time its sale of GM equity. Previous reports have indicated that the Treasury will not try to time the sale to maximize taxpayer value, but will instead try to dump the stock as quickly as possible. Certainly, the political environment seems to favor dumping stock at a loss as much as it does recapturing every last bit of value in GM’s equity.

Doubtless Lazard will try to navigate a compromise between an expeditious public offering and making the most out of Treasury’s investment, but with the possibility of a European-led “double-dip” economic downturn looming, an offering in the next 12 months could find itself flying into the teeth of a jittery market. Helping the case for a rapid GM IPO will be the $10b+ DOE ATVM loans which will be hitting GM’s books within the next several months, as well as the launch of key new products this year, like the Cruze and the Volt.

Perhaps the most important questions surrounding the GM IPO have to do with the structure of the public offering. Will Treasury put all of its 61 percent stake of GM up for sale all at once? And if so, what happens to the UAW’s VEBA fund, which owns another 17.5 percent stake in GM? With nearly 80 percent of GM’s equity held by a cash-strapped union benefit fund and a Treasury department with political motivations for getting out fast, there’s going to be a lot of GM equity for the market to absorb. And, larger economic worries aside, the automotive sector has been a volatile place to park money over the last year.

The challenges are clear. What’s less clear is what the VEBA fund and Treasury are hoping to get out of a GM IPO, and what kind of impact an IPO might have on GM’s performance. IPOs are mysterious, often-irrational events. Here’s hoping this one breaks out big and allows GM to break free of government ownership. Languishing amidst “Government Motors” criticism and cleverly-spun “Payback” ads clearly isn’t doing The General or its taxpayer investors any favors. For better or for worse, it’s time to put this chapter behind us.

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11 Comments on “Treasury Hires Lazard As GM Moves Towards IPO...”


  • avatar

    Far too soon to maximize returns, in my opinion.

    • 0 avatar
      ClutchCarGo

      Maximizing returns, however, is not high on the list of govt motivations. Consider all of the opinions expressed on this site, including TTAC staff, that view every govt action thru the conspiracy lens of govt ownership of GM and Chrysler. Getting out from under that cloud of suspicion before the Nov elections is the prime motivation. While it’s politically expedient, it also reflects the reason for buying into the automakers in the first place: to stabilize the economy, not to make a profit for taxpayers. Getting out ASAP minimizes govt intrusion into private business.

  • avatar
    Geo. Levecque

    Agree with Michael K Its much too soon in today’s Economy!

  • avatar
    mdwheary

    They should have hired Lazarus because they’ll need someone with experience to bring GM back from the dead.

  • avatar

    There is not a single realistic scenario under which US taxpayers will ever recoup all the money wasted in keeping GM around. So let’s abandon any foolish notion the feds should hold onto Gov’t Motors to make money.

    This has always been about politics, not what was in the best interest of the country. Politically, it’s better for the government to cut its — I mean OUR — losses as soon as it can. Not hard to imagine a hurried IPO, closing just days prior to the midterms… before the true amount of losses can be reported.

  • avatar
    don1967

    Apparently the deal-breaker for Lazard was that the new certificates had to be double-ply and cottony-soft.

  • avatar
    thornmark

    ….And never in 100, never in 1,000 and never in 1 million years would I purchase the new shares of GM if it comes public in the summer of 2011. I don’t trust “Whitey” Whitacre, who comfortably indulges in a leadership of lies, setting a precedent for other GM executives. If lying comes so easily to management, then purchasing shares of GM makes about as much sense as buying mortgage-backed securities from Goldman “Sucks.”
    It’s also important to know, when GM comes public, that the government’s huge overhang of stock (just like Citigroup) will continue to depress the share price. What is it that many folks say about car salesmen? Well, Whitey doesn’t fall far from the tree.
    GM stock flunks
    http://www.suburbanchicagonews.com/beaconnews/business/berko/2321038,2_3_AU27_BERKO_S1-100527.article

  • avatar
    CamaroKid

    No, its never been a better time, GM will make money for at least the next 5 maybe 6 quarters, until the uncontrolled market share fall catches up to them again. This will give the government just enough time to dump all of their shares, and get as much out of it as they can… and then watch as GM goes tits up again in 2014 or 2015.

  • avatar
    ihatetrees

    This could work out.
    Maybe a well run private equity firm like Cerberus could buy GM and turn it around…

  • avatar
    John Horner

    Normally IPOs do not include a complete cash out of the prior investors, which in this case means the US Treasury. The smart way to do it is to put 10-30% of the company on to the public market initially and then for the US Treasury to dribble out its stake over a longer period of time.

  • avatar
    guyincognito

    I just remember GM stock soaring as RF posted death watch after death watch. Each bit of bad news seemed to boost the stock until things got so bad even a second grader knew they were in trouble. In other words, we’ll profit handsomely from the IPO.


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