'Government Motors' could repay billions if IPO hits $22bn target

GENERAL Motors will make a historic return to the stock market today in the biggest ever flotation in the US that will enable the government to reclaim a large chunk of its bail-out funds.

The company, responding to a surge in investor demand for its stock, said it will raise the size of its initial public offering (IPO) to 478 million common shares from the previously announced 365 million.

Most of the common stock will be sold by the US government, which is trying to reduce a 61 per cent stake in the country's largest car maker to 33 per cent.

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The IPO will cap a stunning resurrection for a company that nearly ran out of cash in 2008 and lost more than $80 billion (50.3bn) in the four years leading up to its bankruptcy filing last year.

Anant Sundaram, a finance professor at Dartmouth College's Tuck School of Business, said: "This is, in my knowledge, one of the most remarkable turnarounds in corporate history."

GM and the investment bankers running the sale were due to set a final share price after the stock market's close last night, but GM said it expected the common shares to sell from $32 to $33 each.

Sundaram, though, said that given the demand, it wouldn't be surprising to see the final price rise to $35 or $36.

In a quarter of the IPOs over the past three decades, companies have raised share prices above the initial range reported to the Securities and Exchange Commission, he said.

With the increase in shares, the US government, which is GM's largest shareholder, now plans to sell 412 million shares. The remaining shares will be sold by the combined federal Canadian and Ontario governments and a union health care trust fund.

The government's move would bring it closer to recovering at least part of the $50bn it spent last year to save the company from financial ruin.

Selling more shares now in the IPO makes it less likely the government will get all its money back. It means the remaining shares will have to sell for a far higher price for the government to break even.

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The company was an icon of American industrial might for 92 years before being booted off the market in June last year as it entered bankruptcy protection.

The increased number of shares could make GM's IPO the largest in history for a US-based company. If GM's sale of preferred shares is included, the offering could have a total value of more than $22bn, topping Visa's $19.7bn IPO in 2008, according to the IPO tracking firm Dealogic.It could even surpass Agricultural Bank of China's $22.1bn offering in July to become the largest IPO in the world.

The strong Wall Street reception for GM represents a win for the Obama administration after it chose to restructure GM in an unpopular, 2009 taxpayer-funded bankruptcy that left the company with the stigma that it had become "Government Motors".

GM is the first of a number of car-related companies - whose ranks include Chrysler Group and parts supplier Delphi - expected to return to public ownership in coming years.

Car executives and analysts said the reversal in Wall Street sentiment towards an industry that had been shut out of the credit markets in 2008 and 2009 was a positive sign. Chrysler chief executive Sergio Marchionne said: "This will give us a great, great precursor for the Chrysler IPO. I'm delighted; it couldn't have gone better."

GM earned $5bn in the first nine months of 2010 and is on track for its first full-year profit since 2004. But the company has cautioned that fourth-quarter profit will be lower than the rate of the first three quarters because of vehicle launch costs and a higher proportion of less profitable small cars in its mix of production. GM's European unit also remains unprofitable.

In a road show for investors spearheaded by GM chief executive Dan Akerson and chief financial officer Chris Liddell, the company has emphasised both its sharply lower costs and its exposure to key growth markets like China.

One of the open questions remains whether GM's Chinese partner, state-owned SAIC Motor Corp, will participate in the IPO and how much it will invest.