How GM IPO Won Over US Funds With Vows of Change
NEW YORK/DETROIT - One of the first signs General Motors Co. was driving toward a record-setting IPO with booming demand from U.S. investors came from an unlikely indicator: a sudden shortage of chocolate mousse at an investor meeting.
In one of the first appearances on a road show led by GM Chief Executive Dan Akerson that began just after the November elections, the automaker's underwriters arranged for potential investors to hear Akerson's pitch in New York City, reported Reuters.
GM had been expecting about 250 fund managers to turn up at Guastavino's, a former open air market cum architectural landmark beneath the 59th Street Bridge.
Instead, more than 500 crowded beneath the granite arches and vaulted tiled ceilings to hear from Akerson and Chief Financial Officer Chris Liddell.
Planners scrambled to find more lunches for the overflow crowd: salad, chicken, potatoes, iced tea and mousse.
A floor below, GM displayed five of its newer vehicles to catch investors' eyes.
Executives and bankers said that was when they began to realize they had a hit in the making with an IPO for a new GM less than a year-and-a-half after its landmark bankruptcy.
"The excitement was palpable. You could feel it," Akerson said on Thursday.
The strong demand that emerged from U.S. mutual fund investors and other fund managers in road show stops in Boston, Houston, Dallas, San Francisco and others turned the tide for the GM IPO, people involved in the process said.
Including a clause that would underwriters to sell more shares, GM's IPO will raise just over $23 billion, larger than the $22 billion raised by Agricultural Bank of China in July.
Between $3 billion and $4 billion in GM shares went to individual investors, a record IPO showing for Main Street.
From fear and loathing to greed
In September, with Akerson just weeks into the CEO job, underwriters argued that success for the deal would mean courting big overseas "cornerstone" investors, including sovereign wealth funds.
Bankers kicked off the first meetings with the likes of Singapore-based GIC and Temasek Holdings and investment authorities in Kuwait, Qatar and Dubai in October after the U.S Treasury signaled it had no objections, according to those involved in the process.
U.S. officials led by Ron Bloom, a former Lazard Freres banker, had been worried about the potential political backlash if a large share of GM stock was placed with foreign governments at the kind of discount - between 10 percent and 20 percent - that is typical for IPOs.
But when the domestic road show began in the first week of November, GM executives were surprised by how strongly U.S. mutual fund managers wanted in.
"We saw potentially all of the largest mutual funds over the past few weeks and I know - or I think I know - that virtually all of them put orders in," Liddell said.
The questions from U.S. investors, said GM's North American President Mark Reuss, repeatedly centered on one theme: "What's really changed - no kidding - in the company? That was a very consistent question throughout this."
Reuss, 47, GM's resident "car guy," hammered home a message about the automaker's devotion to quality and customer service after years of being criticized for ignoring both.
Liddell, 52, a New Zealand native and former Microsoft Corp CFO, delivered an equally reassuring message about the change in GM's once-lax financial management.
Never again, he said, would GM become "a $100 billion pension plan with a small company attached."
At Liddell's direction, GM began an effort days before the IPO road show aimed at of the biggest worries for potential investors: a $23 billion pension shortfall that went unfixed in the U.S. government bankruptcy.
Liddell was concerned that the estimated shortfall would rise at year end because the accounting effect of lower U.S. interest rates would overwhelm the better performance of its invested funds, one person familiar with his thinking said.
In late October, GM said it would devote $2 billion in stock and $4 billion in cash toward the U.S. pension shortfall after the IPO, leaving a gap of $13 billion the automaker told investors it would pay down over several years.
Liddell's goal was a "fortress balance sheet" that would protect GM from the inevitable ups and downs of a notoriously cyclical car business, he told investors.
One of his roadshow charts depicted the massive swings in U.S. car sales running back to 1913, including the fatal plunge for GM that began from the last peak in 2000.
"We know how we arrived here," Akerson said. "We know what went wrong and I believe we have learned a lot from that."
More Industry

California Calling? What's Up With the State's New CARS Act?
Should auto dealers outside of California be concerned about its new price-transparency law? Yes, and you can guide them in the right direction.
Read More →
Tennessee Transaction Latest in Buy-Sell Flurry
Four stores move from a longtime local family business to one of the country’s biggest automotive groups as part of the industry’s continued consolidation.
Read More →
SUV Joins Safety Rankings
Thanks to a seat belt redesign, the Nissan Kicks has earned a Top Safety Pick award from the Insurance Institute for Highway Safety.
Read More →
Nebraska Rooftop Changes Hands
The Gregg Young Automotive Group has sold its second dealership to Janssen Auto Group, both in Plattsmouth, Neb.
Read More →
Penske Auto Group Deal a Record
The deal to take the dealership and transportation services company private sets a new pace for industry buy-sell transactions.
Read More →
War Toll a Damper on Used Auto Prices
Cox Automotive found wholesale depreciation to be elevated in September amid high fuel prices and this year's unusual hurricane season.
Read More →
Bridge the Maintenance Gap
With many drivers missing recommended maintenance, service departments offering transparency and efficiency have a better chance of reaching financially strained consumers.
Read More →
California Store Has New Owner
The longtime dealership in the northern part of the state is known for robust fleet sales and has served the state capital for 115 years.
Read More →
BMW Plant Pursues Cleaner Energy
BMW Group Plant Leipzig has utilized hydrogen to help power its production since 2013, but a new pipeline is planned to take it to another level.
Read More →
Auto Affordability Inches Up
The latest Cox Automotive and Moody’s Analytics index shows a slight increase in new-vehicle affordability despite high prices.
Read More →