GM IPO Roadshow To Begin The Day After Elections

by Edward Niedermeyer

Published: September 2nd, 2010

gm ipo roadshow to begin the day after elections

Looking for proof that politics are an overriding concern for GM during its forthcoming IPO: look no further than a report by Reuters which claims that

GM’s roadshow is set to begin on Nov. 3 and will last two weeks, the sources said. The IPO is expected to price on Nov. 17 and debut on Nov. 18.

Now why would GM wait until the day after midterm elections to file? Well, it could be so GM has time to file 3rd Quarter financial data before offering shares to the public, but GM’s CFO has already warned that 3rd Quarter results will be worse than results from the first half of the year. In other words, waiting to file is likely to materially hurt the IPO (and taxpayers’ chance of payback). But if GM launches its roadshow the day after elections, it won’t turn the midterm election into a referendum on the auto bailout, a situation that would surely exacerbate the already-strong anti-incumbent trend in American politics. And clearly protecting craven pols is far more important than maximizing the return on “investment” for taxpayers, right?

On the other hand, the IPO’s timing might not even matter so much. After all, estimates of a $20b+ IPO are proving to be as unrealistic as we’ve always thought. According to Reuters

The final value of the IPO has not been set but one source said early plans for the IPO envisioned selling $12 billion to $16 billion in common stock and $3 billion to $4 billion in preferred stock that would convert to common stock under a mandatory provision.

And why not? Gaskin’s Iporeport on the GM offering notes that “Investors don’t like surprises,” and GM has offered plenty of unpleasant surprises. FOr example, the fact that Ed Whitacre appeared in several GM commercials led investors to believe that he would stay around post-IPO, and his recent decision to step down is hardly reassuring. Furthermore, the government and GM are clearly not on the same page, as Whitacre suggested an all-in IPO that the Treasury clearly wasn’t behind. Declining market share, “one time” gains in the first half, the Volt’s many issues, and concerns about new CEO Dan Akerson all make Gaskin’s list of worries. The conclusion:

GM should trade at a discount to Ford which means a 50% loss on the government’s “investment.”

Which, in turn, hurts GM’s chances of future success. If GM is worth less than the $50b the taxpayers invested in it, it will be almost impossible to claim that the bailout was reasonably successful. Which also helps explain why the roadshow won’t start until after elections. Like the bailout itself, GM’s IPO is turning out to be another fear-based play in which preserving the status quo (politically this time, rather than economically) overrides any other concern, such as responsibility to taxpayers. Should we have expected anything else?

#Bailout #GM #Government #Ipo

Edward Niedermeyer

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Geeber on Sep 03, 2010
golden husky: That is where appropriate, measured regulation is needed. Bailing out a failing company is an entirely different animal from regulating a particular sector of the economy. psharjinian: It can’t exist outside of an academic textbook because about five minutes after the “market” opens you’ll start to see certain players gain power, and then use that power to coerce and control the market, becoming a de facto government. You are assuming that this company will remain in power forever. The automobile industry refutes that contention quite neatly. GM had over 50 percent of the American market in the 1950s and 1960s. It strongly influenced everything from the style of vehicles to their content level. GM even influenced the color choices offered by manufacturers. The old joke around Detroit was that GM product planners deserved their high pay because they were planning not just for GM, but the rest of the industry, too. Yet GM began losing market share in the mid-1960s, and process accelerated in the 1980s. The free market asserted itself - as increasing number of customers sought something other than what GM produced, other manufacturers gained power. The one government anti-monopoly action that could have helped ensure greater competition in the auto industry - breaking off Chevrolet from the rest of GM - was not taken in the early 1960s. Instead, Truman Administration filed suit to force the DuPonts to divest their holdings in GM. The Truman Administration won, and the DuPonts began divesting their GM holdings in the late 1950s. The result was that GM lost a strong outside influence that had provided guidance to management. The DuPonts could afford to take a long-term view. GM management and the Board of Directors became increasingly insular in the 1960s through the 1980s (by which point Ross Perot was famously deriding the Board of Directors as "pet rocks"), and we now see the results. You’re so busy being afraid of government involvement in industry that you give industry carte blanche. Instead of the cronyism happening within a government building, it happens in boardrooms instead. The difference is that the free market takes care of companies that are run for the benefit of cronies, not customers. (Well, until the government decides to bail them out with taxpayer money.) The only truly eternal being is a government-run program or company. Here in Pennsylvania we have the Philadelphia Gas Works, which is a government-run utility that provides natural gas to customers. It was created to prevent private utilities from "gouging" customers. It is rife with cronyism and poorly run - to the point of allowing many customers to skip their bills for months, because it would be "unfair" to make them pay for a necessity when they can't afford it (never mind that they have cable TV and deluxe cell phone service). Any private company run along those lines would have gone bankrupt. And that would be a GOOD thing. psharjinian: No where did I say that GM should be the only carmaker, only that it would perhaps be helpful to have a state-owned manufacturer that was a little more progressive and proactive; one that would develop sustainable transport solutions before they’re commercially viable and give them a head start. incubating them past the “first quarter returns” myopia that dominates industry and shielding them from the “damages our business model” generated sabotage that dooms many progressive offerings. Which will never happen, because any state-owned auto maker will serve its government masters, and they will be interested in what gets them re-elected, first and foremost. Why do you think GM is already offering an IPO? The Obama Administration and Congressional Democrats want the issue out of the way before the November elections, if possible. They want to proclaim, "Mission Accomplished!" (Which may be more appropriate for GM's situation than President Obama realizes - oops!) The simple fact is that most "progressive" solutions are not workable, which is why no one is willing to put his or her own money on the line. Customers do not want them. Many "progressives" are still wailing about the GM EV-1, which, if it had been released to the general public, would have been a commercial flop because it was impractical and expensive. There was no real-world demand for the EV-1, despite what Ed Begley, Jr. and his cohorts may believe.

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Bryan Kauffman on Sep 03, 2010

Yup, here we go. Ed crying about how the taxpayers got screwed by saving 300,000 jobs and 2 million elderly persons pensions and health care with a small $50 billion rescue. Yet, where was he crying when the banks stole $750 billion and then another $4 trillion after that? Nowhere. Because that bank rescue was a bailout of his trust fund and if that didn't happen, he would have to actually get a real job instead of sitting in front of the pool typing on his computer all day.

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- Daanii2 on Sep 03, 2010
  
  Sometimes the intellect displayed on this site is simply dazzling.
  
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