- Wednesday, November 3, 2010

DETROIT | General Motors Co. said Wednesday that it expects to earn up to $2.1 billion when it reports third-quarter results next week. The forecast came as GM announced its stock will be priced from $26 to $29 per share in an initial public stock offering.

No date for the IPO was revealed Wednesday, but people briefed on the plan have said it could be around Nov. 18. The sale will allow GM’s largest owner, the U.S. government, to reduce its stake in the company from 61 percent to around 35 percent.

GM now expects to report net income of $1.9 billion to $2.1 billion when it announces results on Nov. 10. The forecast is higher than the $1.6 billion the company earned in the second quarter.

The IPO of 365 million common shares is expected to raise about $10 billion, with $7 billion going to the U.S. Treasury and $3 billion to GM’s other owners, the Canadian and Ontario governments, a union health care trust and former GM bondholders. GM also said its owners have authorized it to split company shares 3-for-1 ahead of the sale.

The terms were revealed in a filing with the Securities and Exchange Commission — the final step before it begins marketing what is expected to be one of the largest-ever IPOs. The investors are expected to span the globe and include sovereign wealth funds.

The IPO would value GM at just over $41 billion at the midpoint of the price range, making it all but certain that U.S. taxpayers would face a loss on the automaker’s still controversial bailout. GM needs a market value of roughly $70 billion if U.S. taxpayers are to break even.

At $41 billion, GM would also be priced at about a 16 percent discount to its smaller but more successful rival Ford Motor Co., which has a market capitalization of more than $48 billion.

“That would make sense,” said Bernie McGinn, chief investment officer at McGinn Investment Management in Alexandria. “Ford has done everything right, and GM is a year out of bankruptcy and it has a new CEO.”

Mr. McGinn, who owns Ford stock, said the discounted value for GM also reflected the urgency for the Obama administration to exit its investment in the U.S. automaker.

“I think this is a political thing. It’s being driven by Washington,” he said. “They just want to get out. And if you talk about eating $10 billion in losses, this is a city that can eat trillions of dollars.”

One source familiar with the offering said, “[The Treasury] decided they wanted a massive upside.” The source asked not to be named because he was not authorized to speak with the media on the subject.

GM, which will have 1.5 billion outstanding common shares after a planned 3-for-1 stock split in the IPO, would need to trade at roughly $50 per share in the market to reach the $70 billion break-even threshold.

The Treasury, which holds a 60.8 percent stake in GM as a result of its $50 billion bailout, will take a loss of up to $4.9 billion on its sale of shares in the IPO.

The Treasury plans to cut its stake to just over 43 percent, excluding the overallotment option.

Treasury officials led by former Lazard Freres and Co. banker Ron Bloom have indicated they are willing to take an initial loss on GM as part of the Obama administration’s stated goal of exiting from the government’s investment as “quickly as practicable.”

Some analysts said a rally in GM shares — and a stronger recovery in global auto sales — could still bring the U.S. taxpayer-funded investment closer to break-even.

“It’s only the starting point,” IHS Automotive analyst Aaron Bragman said of the initial valuation of GM and the paper loss for Treasury. “GM knew it was not going to get it all back at once.”

• From combined dispatches

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