TAXPAYERS FACE LOSSES ON GM’S INITIAL PUBLIC OFFERING
By Mark Kleis
Several sources familiar with the preparations of General Motors’ upcoming initial public offering are, according to the latest projections, suggesting that American taxpayers could take a loss on the offering, potentially pushing off payback for years.
The U.S. taxpayers currently lay claim to a 61 percent ownership stake in GM, meaning taxpayers would need GM’s IPO to value the automaker in the realm of $70 billion in order to break even on their investment. Six individuals with inside knowledge on the offering say that the Treasury intends to sell the first available shares below the projected break-even valuation rate, according toReuters.
Selling shares below the market value is not a unique approach, Reuterspoints out that it is a common practice on Wall Street to give incentives to early investors. Typically the discount is placed between 10 and 15 percent, but some analysts are suggesting that GM may need to offer a deeper discount due to the looming economic uncertainty, increasing the likelihood that the taxpayers will not be fully reimbursed through the IPO.
Depending on the level of the discount, GM may come up short, as analysts believe that the market valuation of GM is between $50 and $90 billion – making the target value of $70 billion a possibility. Even if GM’s market value comes in at $70 billion, if the discount is too steep, the break-even will still not be met.
The sources also explained that for taxpayers to fully recoup the $50 billion investment made thus far, GM may need up to three years and several additional offerings.
Despite several projections placing a full payback out of reach at this time, GM still plans to hold a roadshow to woo investors beginning the day after the November 2nd elections, and leading up to the November 18th IPO.
In: Business Stories · Tagged with: American Taxpayers, Automaker, Economic Uncertainty, General Motors, Gm, Incentives, Initial Public Offering, Ipo, Likelihood, Market Valuation, November 2nd, Ownership Stake, Payback, Reuters, Roadshow, S Market, Salary Information, Selling Shares, Target Value, Wall Street