IPO VIEW-Ford stock rally could be boon to GM IPO

* Ford multiples one way to calculate GM’s equity value

* GM IPO initially seen weighing on Ford share price

* Ford shares near 6-month high on earnings, upgrades

* Ford rally part of broader rebound in industry stocks

By Soyoung Kim, Clare Baldwin and Kevin Krolicki

NEW YORK/DETROIT, Oct 29 (BestGrowthStock) – Ford Motor Co’s (F.N: )
emergence as Detroit’s darling may have fueled jealousy at
General Motors Co [GMAAF.UL] headquarters, but the archrival’s
rising shares could help GM as it readies its landmark return
to public markets.

As GM’s only major U.S.-listed rival, Ford is the company
investors and bankers are turning to as they debate the largest
U.S. automaker’s theoretical value ahead of the high stakes IPO
scheduled for soon after next week’s U.S. mid-term elections.

There are several ways to calculate value for GM, including
using a multiple of its projected cash flow based on Ford’s
multiples, or doing an implied value calculation based on where
GM bonds are trading.

Initially, GM’s IPO — just over a year after the
automaker’s bankruptcy — was widely expected to weigh on
Ford’s shares, which have appreciated sharply since hitting a
record $1.02 low in November 2008 and were trading around $12
when news of GM’s stock float first began to circulate in May.

Ford executives were repeatedly asked to assess the risk
that mutual funds and other institutional shareholders might
“rebalance” their portfolios, dumping Ford stock and buying

“Just mathematically, a lot of mutual funds and other
investment entities will probably spread their investment out
over the sector more,” Ford Executive Chairman Bill Ford told
reporters in August, two days after GM filed the initial
paperwork for its IPO with the U.S. Securities and Exchange

Whether GM benefits — and Ford suffers — from investors
diversifying their autos holdings will not be determined until
after GM’s debut in mid-November. But in the meantime, Ford’s
share rally and a broad rebound in auto industry stocks across
the board are helping GM’s valuation.

Ford, which posted losses totaling $30 billion from 2006
through 2008, has emerged as the strongest of Detroit’s “Big 3”
automakers under a turnaround plan led by Chief Executive Alan
Mulally. [ID:nN26109531]

Its stock hit a six-month high of $14.47 on Tuesday when it
impressed investors with a $1.7 billion profit for the third

The stock has also been bolstered this month by a series of
upgrades, increased price targets and praise for management
from analysts at Morgan Stanley (MS.N: ) (Read more about the money market today. ), Deutsche Bank AG
(DBKGn.DE: ), Barclays Capital, JPMorgan Chase & Co (JPM.N: ),
Goldman Sachs Group Inc (GS.N: ) and Credit Suisse AG (CSGN.VX: ).

All six of the banks are part of GM’s IPO syndicate, which
also includes UBS AG (UBS.N: ), Royal Bank of Canada (RY.TO: ),
Citigroup Inc (C.N: ) and Bank of America Merrill Lynch (BAC.N: ).
Analysts at the banks have held meetings since mid-October
aimed at reaching a consensus on the market value of GM and
setting a target price range and number of shares to sell in
the IPO.

“It’s nice to have benchmarks bubbling up and the general
mood being very positive,” said one person familiar with GM’s
preparations to go public. “There’s a general level of interest
and curiosity about whether there’s been some fundamental
change in the auto industry that makes it worth looking at

That person said that, while the analysts have largely been
ahead of the market, results from companies such as Ford and
major auto parts suppliers have been better than expected,
supporting those forecasts.

Shares of Johnson Controls Inc (JCI.N: ), one of the world’s
biggest auto parts suppliers, are up nearly 30 percent this
year. It posted a 50 percent rise in quarterly profit on
Tuesday thanks to gains in auto production in the United States
and Asia.

With a market capitalization of about $48 billion, Ford
shares are now trading at 4 times its projected 2011 earnings
before interest, tax, depreciation and amortization (EBITDA) of
about $12 billion, according to estimates by Thomson Reuters

Based on a 2011 EBITDA projected in mid-August of $13
billion for GM by CRT Capital Group, GM could in theory command
a market value of $52 billion, when applying Ford’s multiple.

Bankers will also take into account the automaker’s net
cash position, stakes in its China joint ventures and auto
parts supplier Delphi, and its recent $3.5 billion purchase of
lender AmeriCredit among other factors.

When those are factored in, GM could have a market
capitalization close to $70 billion, people familiar with the
matter have said. The sources added GM’s IPO valuation would
likely come at a typical discount of 15 percent to 20 percent
— or maybe slightly more — from $70 billion to reward IPO
investors for taking a risk on a new issue.
(Reporting Soyoung Kim, Clare Baldwin and Kevin Krolicki;
editing by Andre Grenon)

IPO VIEW-Ford stock rally could be boon to GM IPO