GM Shares Return to NYSE, But Will Buyers?

Nov. 18, 2010— -- Shares of automaker General Motors surged on their return to the New York Stock Exchange today after a bankruptcy and $50 billion government bailout just 18 months ago. Investors snapped up the stock, unlike the Pontiacs and Oldsmobiles a generation of drivers increasingly spurned.

Yesterday, the new General Motors Co. priced its initial public offering of 478 million shares at $33 each. The price tag makes it one of the largest IPOs in U.S. history, raising as much as $23 billion with preferred shares included.

Investors will be watching the shares closely today -- if they rise from $33 it will be a good sign. But if they rise too much, it means the offer was underpriced, costing GM and U.S. taxpayers a pile of money. The shares advanced to $34.25 at 3:20 p.m. on volume of 391 million.

Only about 20 percent of the shares have been allotted to small retail investors with the rest going to institutions and money managers. Brokers who spoke with Reuters cautioned that small investors often get burned buying IPOs once they start trading, rather than getting part of the initial offer.

"I think hedge funds and institutions will be taking the shares and flipping them quickly, which leaves more risk to retail investors, who aren't as savvy," said David Cottam of National Wealth Management, an independent adviser firm in Morristown, New Jersey.

The new GM has far fewer workers and only four of its eight divisions, and despite the high interest in the share offer, there's still much to be done to call this a turnaround story.

"One-third of their product line is really good, but one-third of their product line is mixed and needs some work and is self-described as crappy," said Linda Killian, founder of Renaissance Capital in Greenwich Connecticut.

Senior administration officials said the U.S. Treasury will sell 358 million government shares of the company to raise $11.8 billion. It would reduce the government's primary ownership stake in GM to about 37 percent from 61 percent. The government will take a $4.5 billion loss on those shares.

If an over-allotment option is exercised as expected, gross proceeds would grow to $13.6 billion and government ownership would drop to about 33 percent.

"General Motors' initial public offering (IPO) marks a major milestone in the turnaround of not just an iconic company but the entire American auto industry," President Obama said in a statement. "Through the IPO, the government will cut its stake in GM by nearly half, continuing our disciplined commitment to exit this investment while protecting the American taxpayer. Supporting the American auto industry required tough decisions and shared sacrifices, but it helped save jobs, rescue an industry at the heart of America's manufacturing sector, and make it more competitive for the future."

Since the U.S. remains the primary shareholder it will continue the same oversight of GM as before, "though at a reduced level." Compensation limits for GM executives are still in place and are not being altered as a result of the IPO.

GM shares were originally expected to go public at $26 to $29. But then investment banks got orders from professional investors at big institutions for much more than were up for sale. So they raised the offering price to $32 to $33 a share and the number of shares offered by one-third.

Any time IPOs increase in size and price it is a good sign, said Reena Aggarwal, a professor of finance at Georgetown McDonough School of Business. "GM's ability to successfully come out with an IPO during choppy times demonstrates that investors are extremely interested in the deal," says Aggarwal.

And, if the markets are any indication, the economy is improving. After the Dow Jones Industrial Average fell below 7,000 in March of 2009 during the financial crisis, it has risen above 11,000.