GM Financial Outlook Improving For IPO...

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    GM Financial Outlook Improving For IPO...

    From: Automotive News:


    Automotive News | May 1, 2010 - 8:58 am EST


    DETROIT (Bloomberg) -- General Motors Co. may be able to command a stock price greater than $100, tempting holders of warrants to buy shares that would reduce the U.S. government’s controlling stake.

    Improvement in GM’s cash generation and profit outlook, just nine months after emerging from bankruptcy, may set the equity value of the company at about $68.6 billion, JPMorgan Chase & Co. debt analyst Eric Selle said in an April 26 report. That would be 50 percent more than Ford Motor Co. and lead to a share price of $113 to $137 a share -- depending on how many shares GM decides to sell.

    “I’m optimistic that GM is going to have a tremendously successful IPO and maybe eventually get to $100 a share or more,” said Maryann Keller, president of consultant Maryann Keller & Associates in Stamford, Conn. “The proof is going to be whether people are walking into dealerships and putting money down to buy a car.”

    GM, the largest U.S. automaker, plans an initial public offering of shares as early as this year. The U.S. government’s 60.8 percent equity stake in GM is from its aid in the company’s July 2009 exit from court protection. The warrants would let a union fund and debtors recoup more of their bankruptcy losses.

    GM will have to continue to show an ability to attract buyers this year, analyst Keller said. GM’s U.S. sales rose 17 percent in the first quarter as the industry total increased 15 percent.

    “You cannot have high valuation on this stock without momentum in the market,” she said.

    Ownership stakes

    GM’s ownership is split up on the basis of 500 million shares. Warrants to sell 106 million additional shares at prices of $30 to $126.92 apiece could dilute the U.S. stake to 50.2 percent. The old GM had about 565 million shares that peaked at $94.63 in April 2000, according to Global Financial Data in Los Angeles.

    CEO Ed Whitacre said on April 21 that he envisions selling GM shares to the public this year, as the automaker returns to independence.

    “You have basically the full support of the U.S. government behind this company, and that’s going to help support the value,” said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Mich. He helps manage about $18 billion, including debt of GMAC Inc., the finance company that was formerly part of the automaker.

    A value of as much as $137 a share might cause the debtors from GM’s predecessor and the UAW retiree health-care fund to exercise their warrants for more stock in the company, Mikelic said.

    Stock warrants

    The debtors have warrants to buy 45.5 million more shares at $30 each and another 45.5 million at $55 each, while the retiree fund has the right to purchase 15.2 million at $126.92 apiece, according to GM regulatory filings.

    “GM isn’t a joke anymore,” said Rebecca Lindland, an analyst at auto forecaster IHS Global Insight in Lexington, Mass. “They are paying back loans and Ed Whitacre is the real deal.”

    In addition to the U.S. government’s majority stake, the UAW fund now holds 17.5 percent of GM, the Canadian government has 11.7 percent and the debtors own 10 percent.

    If all the warrants are exercised, the debtors’ stake would rise to 23.2 percent, while the other holdings would decline to 50.2 percent for the U.S., 16.9 percent for the UAW fund and 9.6 percent for Canada. Sale of the shares to satisfy the warrants would raise $5.8 billion for GM.

    At the estimated $68.6 billion total value for GM, the U.S. government’s fully diluted stake would be worth $34.4 billion, compared with $41.7 billion without any dilution from the warrants.

    U.S. position

    The government’s current net investment in the automaker is $42.2 billion, according to a senior official of President Barack Obama’s administration. That’s after GM has repaid $6.7 billion in loans and paid $600 million in interest and dividends. The government also holds $2.1 billion in the company’s preferred shares.

    The government now estimates that any losses on its auto investment will be substantially less than it expected six months ago, the U.S. official said, without giving figures.

    “The stock could be worth a lot,” Whitacre told reporters in Washington last week, after GM announced that it had finished repaying the $6.7 billion from the Troubled Asset Relief Program. “The taxpayer could get all their money, plus, back.”

    Eliminating those loans, which were due by 2015, “shows GM’s confidence in the recovery, because they are giving up cash to pay off the debt,” Selle, the JPMorgan fixed-income analyst who estimated the equity value of the company, said in an interview discussing the report.

    45 cents

    Selle said debtors who hold the equity stake and warrants may recoup about 45 cents on the dollar when GM goes public and their bonds are converted into the automaker’s new shares.

    GM’s 8.375 percent bonds due July 2033 closed at 38 cents on the dollar on April 28, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. The bonds were issued by the automaker’s predecessor, General Motors Corp.

    At this week's bond prices, compared with Selle’s 45 cent estimate, GM is worth about $58 billion, or 26 percent more than Ford’s $46 billion. Toyota Motor Corp., the world’s largest automaker, is worth $135 billion, and Volkswagen AG, Europe’s biggest, is worth $44 billion.

    Shares in the old GM, which still trade under the MTLQQ ticker, will be worthless once the bankruptcy is complete and have no connection with the stock created for the new GM.

    Generating cash

    GM said on April 7 that it generated $1 billion in cash last year and is getting closer to break-even on an operating basis. The company plans to release first-quarter results in mid-May.

    “Our version of equity is the product and the product is just really good,” said Lindland, who was in Germany this week driving the new Buick Regal sedan.

    “Ed Whitacre has been more successful than anyone expected at bringing financial legitimacy back to GM. Everyone just expected that they would never pay the government back and I guess Ed Whitacre didn’t get the message.”

    Bondholders with about $27.2 billion of the old GM’s debt, led by Franklin Advisors and Fidelity Management, agreed to accept the 10 percent stake and the warrants in the new company.

    A Fidelity spokeswoman, Sophie Launay, wouldn’t comment on the warrants or its investment. Stacey Johnston, a spokeswoman for Franklin, and Andy Mass, a spokesman for FTI Consultants, which represents the creditors in the GM bankruptcy, also declined to comment.

    UAW warrants

    GM, Ford and Chrysler LLC in 2007 contract talks with the UAW each agreed to form a retiree health-care trust, known as a Voluntary Employee Beneficiary Association, or VEBA. The trusts were funded with stock, cash and warrants, and assumed responsibility for medical costs of union retirees.

    Ford said in March that it expected the VEBA for its UAW retirees to raise $1.78 billion from the sale of warrants to buy Ford shares. The automaker said on March 29 that the trust would sell all of its 362.4 million warrants.

    It’s premature to determine when the VEBA for GM retirees will execute or sell its warrants, said Nell Hennessy, CEO of Fiduciary Counselors Inc., which is advising the fund on the share-purchase rights.

    “This is a good example of how the federal bailout money is helping regular people,” she said. “The GM VEBA has other assets that we can use to pay benefits, so we have no pressure to sell GM equity quickly.”

    SOURCE: http://www.autonews.com/apps/pbcs.dl...plate=printart

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    Last edited by megeebee; 05-03-2010 at 06:04 PM.
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    Re: GM Financial Outlook Improving For IPO...

    Love it.

    Ed Whitacre is the man.

    All the "Government Motors" haters will have nothing to complain about soon!
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    Re: GM Financial Outlook Improving For IPO...

    Quote Originally Posted by poncho1982 View Post
    Love it.

    Ed Whitacre is the man.

    All the "Government Motors" haters will have nothing to complain about soon!
    No your wrong they will just complain about how gm needed help in the first place.

    That being said gm is on its way to being the car maker in the world.

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    Re: GM Financial Outlook Improving For IPO...

    GM will report 1st quarter financials later this month.

    Also... today the US Treasury announced that it will be revising their estimate on the total cost of the auto "bailout" and their estimated ROI on their GM investment. Sounds like we have more good news on the way...

    (They were previously predicting a loss of $6.7B out of the $50B+ invested in GM)
    Last edited by PistonsFan; 05-03-2010 at 08:19 PM.

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    Re: GM Financial Outlook Improving For IPO...

    Quote Originally Posted by PistonsFan View Post
    GM will report 1st quarter financials later this month.

    Also... today the US Treasury announced that it will be revising their estimate on the total cost of the auto "bailout" and their estimated ROI on their GM investment. Sounds like we have more good news on the way...

    (They were previously preidcting a loss of $6.7B out of the $50B+ invested in GM)
    Hate to say this... "Told you so"

    (Well not you, but those others know who they are)

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    Re: GM Financial Outlook Improving For IPO...

    I just dont see how people can turn this into neg news but im sure someone will try! I just think this is great, gm went the hard way and filed chapter 7 taking crap along the way but ford didnt want any part of it and look where gm is headed now!

    Sometimes you have to swallow your pride in order to move forward!

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    Re: GM Financial Outlook Improving For IPO...

    I can't wait for the IPO!

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    Re: GM Financial Outlook Improving For IPO...

    Quote Originally Posted by chevyrules! View Post
    I just dont see how people can turn this into neg news but im sure someone will try! I just think this is great, gm went the hard way and filed chapter 7 taking crap along the way but ford didnt want any part of it and look where gm is headed now!

    Sometimes you have to swallow your pride in order to move forward!
    I wouldn't call it swallowing your pride, I'd call it ****ting on the bond and stockholders, and screwing them. I lost 10k on stock.
    If anyone should have pride it's Ford, they didn't screw their stockholders and they will pay back all their debit.

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    Re: GM Financial Outlook Improving For IPO...

    “You have basically the full support of the U.S. government behind this company, and that’s going to help support the value,” said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Mich. He helps manage about $18 billion, including debt of GMAC Inc., the finance company that was formerly part of the automaker.
    Here's your takeaway.

    Be careful if you plan on holding the stock for any meaningful period of time.
    "They say Eve tempted Adam with an apple, but man I ain't goin' for that. I know it was her pink Cadillac!"

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    Re: GM Financial Outlook Improving For IPO...

    Quote Originally Posted by TORRED1 View Post
    I wouldn't call it swallowing your pride, I'd call it ****ting on the bond and stockholders, and screwing them. I lost 10k on stock.
    If anyone should have pride it's Ford, they didn't screw their stockholders and they will pay back all their debit.
    So gm is just ignore the laws on the books that allow them to file chapter7

    Look I lost money too, but I understand why it had to be done.

    I don't here people say I'm not going to bank with this bank cuz the got money from the govt

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    Re: GM Financial Outlook Improving For IPO...

    I really want to buy stock in GM when they go public, but are there age limits?

    Also, after trying to contact Ed Whitacre, I am a little upset that I have received no reply, I understand he is a busy man, running the worlds most awesome car company, but it was basically a yes or no question.
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    Re: GM Financial Outlook Improving For IPO...

    Quote Originally Posted by 96RIV View Post
    I really want to buy stock in GM when they go public, but are there age limits?

    Also, after trying to contact Ed Whitacre, I am a little upset that I have received no reply, I understand he is a busy man, running the worlds most awesome car company, but it was basically a yes or no question.
    No. I've owned stocks since I was 15.

    And you shouldn't expect to get a reply from GM execs. If I recall correctly, Whitacre isn't exactly that computer literate.
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    Re: GM Financial Outlook Improving For IPO...

    Quote Originally Posted by TORRED1 View Post
    I wouldn't call it swallowing your pride, I'd call it ****ting on the bond and stockholders, and screwing them. I lost 10k on stock.
    If anyone should have pride it's Ford, they didn't screw their stockholders and they will pay back all their debit.
    GM's stock didn't devalue over night. It happened over years, not over night. So there's not very much sympathy for someone losing $$ on GM stock.

    To avoid losing one's shirt on any stock. Pick a percentage loss, 5... 7% and stick with it. If the stock drops to where your investment amount is worth a certain percentage less, dump the stock and protect yourself. Remain hard fast diligent with it. We all know it's tough selling at a loss, but remain steadfast with this practice, then re-enter when the entry price feels good again.

    Additionally many analysis and investors will tell you today the buy and hold strategy of old simply doesn't work anymore. Get in, make your profit and get out. Else you expose yourself to all the games that are played every day on the market (Hedge Funds, Institutional Buying).

    A large majority of those GM bond holders were the investment community looking to make a buck in the end. Buying bonds for 15 cents on the dollar, hoping they would be worth 20 to 35 cents on the dollar in bankruptcy. These were investors looking to cash in on GM's bankruptcy. As with any hedge or bet on an investment, sometimes it doesn't pan out.

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    Re: GM Financial Outlook Improving For IPO...

    Quote Originally Posted by chevyrules! View Post
    I just dont see how people can turn this into neg news but im sure someone will try! I just think this is great, gm went the hard way and filed chapter 7 taking crap along the way but ford didnt want any part of it and look where gm is headed now!

    Sometimes you have to swallow your pride in order to move forward!

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    Re: GM Financial Outlook Improving For IPO...

    Quote Originally Posted by wescoent View Post
    Here's your takeaway.

    Be careful if you plan on holding the stock for any meaningful period of time.
    I don't think I've ever thought that buying stock on the IPO was a good idea. Generally, there is a little too much irrational enthusiasm.

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