Sunday, November 21, 2010

On the Road with General Motors: An IPO Story

On Thursday, shares of General Motors (US: GM; Canada: GMM) began trading, after raising $23 billion in the largest initial public offering (IPO) in US history. With a history extending back to 1897, the timeline of this iconic American firm includes its high profile Tomorrow-land exhibit at the 1964 World Fair in New York, its critical treatment in Michael Moore’s 1989 film “Roger & Me” and its recent bailout by the US and Canadian governments which led some people to feel that GM stood for “Government Motors”. Viewed in a global context, GM is number two in vehicle sales in China (the world’s largest market for vehicles), behind Volkswagen and is number three in Brazil, behind Fiat and VW.

MY TAKE: During the two-week global road show for the IPO, there was great enthusiasm about this stock offering among investors. From an investment perspective, GM still has significant competitive threats from VW, Hyundai, Ford and other emerging players. Additionally, the firm must service substantial legacy pension obligations. For the U.S. government to recover its $50 billion investment, the U.S. Treasury Department has to sell its remaining 500 million shares at an average price of $53 (Friday’s close was $34.26). Please note: 98% of the shares purchased in the IPO were sold on the first day of trading – are there any long-term investors? The road ahead for GM could be tricky.

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