Thursday, November 04, 2010

GM IPO launch to be well grounded but in the air

Bloomberg News today reports that the government owners and the labor unions pushed for a $30 a share IPO price but eventually compromised with the company and underwriters to settle on a range of between $26 and $29 a share. The company and its bankers had originally sought a range of the low to mid-20's.

From this seat it appears that the government and unions don't quite get the IPO market. It's not a "we'll price it here, get it, and live happily ever after" event. It may well be that the price rises after the IPO is placed. It is unlikely to rise dramatically. That situation is what the goal should be, especially in this case. There is a ton of stock left to eventually follow into the public markets and the company and government should want satisfied investors with their heads above water out there in the investment community.

If experience is any guide it is likely that the stock will price near the $26 area. Any quick gain by the investors is the reward for the longer term risk that they are taking and the immense amount of immediate liquidity that they are providing. That's just the way the market works and with any luck it will make the next offering in a year or two significantly more rewarding for the government and union beneficiaries. That's the "well grounded" part.

As far as "in the air", The NYT business section today chose to make a front page story out of the fact that GM executives are allowed to fly on "chartered"(private) aircraft for the deal's road show. The article notes that after much criticism and the government requiring that GM sell all of its corporate aircraft "as a condition for accepting emergency federal assistance, GM has required its executives to travel on commercial planes".

This is news? The thought of flying commercial on a road show is incomprehensible to anyone familiar with the process. Imagine calling on investors in seven European cities in five days, with both group presentations and one-on-ones with the behemoths in each city, and flying commercial. Consider the same sort of challenge for a company team in the U.S. at the same time. It was impossible to do anything but fly private back in the late 1980's in my first experience with the process and doing so today with the security screenings and cramped planes is just unthinkable. Of course, why get in the way of a "there they go again" story that might aggravate a few more people.

Fly away GM, blue suit, white shirt, regimental stripe tie, firm handshake, make eye contact, and be positive. Sell that stock.


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