Ask The Best And Brightest: Who Will Be GM's "Cornerstone Investors"?

Edward Niedermeyer
by Edward Niedermeyer
ask the best and brightest who will be gm s cornerstone investors

GM’s IPO filing still has yet to appear on the SEC’s EDGAR database, but while we wait for the S-1 form to clear, Reuters has some details on what to expect from the sale. The big news:

GM is mulling a plan under which sovereign wealth funds or pension funds would serve as “cornerstone investors,” a technique often used for large initial public offerings to show that key investors are supporting the deal, four people said…

Each cornerstone investor would likely be asked to commit to buying 2 percent to 10 percent of the IPO and cornerstone investors would likely account for 10 percent to 30 percent of the total IPO, one of the sources said.

On the other hand, another source says GM is targeting 15 percent of its equity towards cornerstone investors, with 20-25% is aimed at the retail investment market. Either way, Reuters points out that another recent large IPO of a government-owned business, the Agricultural Bank of China, relied heavily on cornerstone investors… but that the politics of such a strategy could be risky.

After all, Chinese, Indian and Latin American investors have strong incentives to invest in GM, which has strong presences and growth opportunities in those regions. Indeed, GM’s Chinese partner SAIC has already bought out the majority stake in its Shanghai GM joint venture, and took over GM’s Indian operations. Other politically unpalatable but very possible cornerstone investors: Arab sovereign wealth funds, Russian oligarchs, or labor union pension funds. If any of these investors buy up large chunks of GM equity, the auto bailout will suddenly be seen as taxpayer support for overseas investors or a favor for the politically well-connected unions. And since both auto task force boss Ron Bloom and TARP boss Herb Allison

have been consulted on the question of how to balance access to the offering by retail investors against the potentially competing goal of maximizing returns for U.S. taxpayers.

the White House won’t be able to avoid any political fallout from (for example) headlines proclaiming a part-Chinese-owned GM.

On the other hand, getting a big investor to go large on a GM IPO could help reassure the market, which is understandably hesitant about GM’s return to public trading. But who’s got $2b to drop in a single big bet on a troubled, recently-bankrupt automaker? If GM’s can find two such investors with no major political downsides, they’d be crazy not to woo the hell out of them. But who could such investors be? Or will GM throw politics to the wind and end up in the arms of their Chinese partners? Scenario me…

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5 of 26 comments
  • Pgcooldad Pgcooldad on Aug 18, 2010

    Ok, just for laughs ... How about Cerberus?

    • Lorenzo Lorenzo on Aug 18, 2010

      What do you mean, "just for laughs"? Cerberus knows more about the car biz than any other investor. Specifically, they know how much they don't know.

  • GarbageMotorsCo. GarbageMotorsCo. on Aug 18, 2010

    Let China invest in them, they'll own GM down the road anyways.

    • See 1 previous
    • MikeAR MikeAR on Aug 18, 2010

      Rob, you are absolutely right.

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  • Dusterdude @El scotto , I'm aware of the history, I have been in the "working world" for close to 40 years with many of them being in automotive. We have to look at situation in the "big picture". Did UAW make concessions in past ? - yes. Do they deserve an increase now ? -yes . Is their pay increase reasonable given their current compensation package ? Not at all ! By the way - are the automotive CEO's overpaid - definitely! (That is the case in many industries, and a separate topic). As the auto industry slowly but surely moves to EV's , the "big 3" will need to be producing top quality competitive vehicles or they will not survive.
  • Art_Vandelay “We skipped it because we didn’t think anyone would want to steal these things”-Hyundai
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  • El scotto No, "brothers and sisters" are the core strength of the union. So you'll take less money and less benefits because "my company really needs helped out"? The UAW already did that with two-tier employees and concessions on their last contract.The Big 3 have never, ever locked out the UAW. The Big 3 have agreed to every collective bargaining agreement since WWII. Neither side will change.