GM Offering Will Face Investors' Doubts on Market Share, Profit
NEW YORK - General Motors Co. will have to convince investors to look past declining market share, less than a year of profitability and management new to the auto industry to buy shares in its initial public offering, Bloomberg reported.
GM, 61 percent owned by the U.S., said its North America market share may fall by 2014, while the company has forecast earnings growth will slow in the second half of the year after a two-quarter return to profitability.
The automaker must have a market capitalization of $69.4 billion after the IPO for the government to be able to break even on its investment, data compiled by Bloomberg show.
GM's filing with the U.S. Securities and Exchange Commission laid out the challenges the company will face generating enough investor demand to complete an offering that people familiar with the plan have said may be as large as $16 billion.
“It will be a tough sell because the company has only posted two quarterly profits and the CEO is stepping down,” said Peter Jankovskis, who oversees $2.3 billion as co-chief investment officer at OakBrook Investments in Lisle, Illi. “Those aren't the normal types of things associated with an IPO that's going to be highly subscribed.”
The company must be worth even more than the $69.4 billion for the U.S. to fully recover its investment if the bondholders and the UAW exercise warrants and dilute the government's stake, data compiled by Bloomberg show. That's more than three times the value of GM's equity at the end of the last bull market in U.S. stocks and 65 percent higher than Ford Motor Co.'s market capitalization of $42 billion.
GM posted profit of $865 million in the first quarter and $1.3 billion in the second quarter. Chief Financial Officer Chris Liddell said last week he expected earnings to moderate in the second half, without giving a specific target.
Recent economic reports have signaled the U.S.'s recovery from the longest recession since the Great Depression is deteriorating. Unemployment claims unexpectedly rose in the first week of August and sales at retailers increased less than forecast last month, reports showed last week.
The Federal Reserve said Aug. 10 that the pace of recovery will probably be “more modest” than forecast.
“This is going to be harder than it would have been if the economy and the auto market were in better shape,” said Joe Phillippi, principal of AutoTrends Inc., a consulting firm in Short Hills, N.J. “Every week, people are ratcheting down their outlook for the economy and that will affect the price of this deal.”
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