IPO VIEW-GM IPO proves complex with competing interests

* GM IPO proving complex, flush with competing interests

* IPO expected to raise $10 bln to $20 bln -sources

* IPO size a point of contention -sources

By Clare Baldwin

NEW YORK, Sept 10 (BestGrowthStock) – It’s an open question whether
General Motors Co’s [GM.UL] IPO will be the largest U.S.
offering ever, but it is already one of the most contentious.

One of the clearest illustrations of the competing
interests is the debate over the size of the stock offering.
The offering could range from $10 billion to $20 billion,
according to several people familiar with preparations for the
landmark IPO.

On one side is GM, which is eager to push the “Government”
out of “Government Motors,” and on the other side is Treasury,
which wants to exit its investment as quickly as possible but
is skittish of hurting taxpayer returns by swamping the market
with shares.

Banks are somewhere in the middle. They want the prestige
of a massive deal but also want to pave the way for future
business and need to prove they can construct a deal that
works, the sources said.

Former Chief Executive Ed Whitacre, before he stepped down,
had been pushing for a larger deal, several people said.

“I don’t think he was pushing it just to make it the
largest, to pound his chest. I think his was a more systemic
view, which was: we want to get as big a chunk of the
government out as we can because we want them out of our
business,” one person said.

The banks and advisers on the deal could also benefit from
the prestige of a mega offering. That is especially true for
the banks, which agreed to a record-low fee in a concession to
the Treasury.

A bigger deal could also resonate with employees and car
owners and maybe even help attract portfolio managers who may
be inclined to start building positions in a stock they think
could join an index.

But U.S. officials have been wary of rushing to a large
deal, fearing it could undercut pricing and taxpayers’ return
on a controversial bailout, a source familiar with the
situation said.

The Obama administration poured $50 billion of taxpayer
money into the U.S. automaker and took a 60 percent stake in an
unpopular government-backed bankruptcy.

GM in August filed paperwork for an IPO that will let the
U.S. start exiting its stake.

Treasury spokesman Mark Paustenbach declined to comment. GM
has repeatedly declined to comment, citing securities
regulations that prohibit it from discussing the deal in
advance of the IPO.

Regardless of the size of the IPO, it will take years for
Treasury to sell off its full stake.

The government already plans to sell its first tranche of
shares at a price below where taxpayers would break even,
sources have previously told Reuters. A smaller IPO could
support prices by restricting the supply of shares and leave
the government more to sell if the shares appreciate, thus
boosting taxpayer returns.[ID:nN03151099]

“Once you get past a certain size it’s less about positives
in the market and more about making sure you’re not doing
something that’s going to negatively impact valuation,” said
one source.

“If markets get choppy you will have to lower your
valuation to attract that marginal dollar because of the
increased size,” that person said.

Visa Inc’s (V.N: ) March 2008 IPO currently holds the record
for the largest U.S. IPO, at $19.7 billion. GM has not yet set
its IPO size but is expected to raise between $10 billion and
$20 billion, sources familiar with the preparations have said.

There is little beyond bragging rights to drive the IPO to
the upper end of the expected range.

“You do get to a point where, depending on market
conditions, equity money flows, you do need to make sure there
is enough money on the sidelines, globally, to be able to
absorb the transaction where it is not going to impact price,”
said one source.

So far this year, the U.S. market for IPOs has struggled.
New issue pricings in the United States are the weakest of the
past five years — financial crisis years included. Nearly a
third of all U.S. IPOs have priced below range, according to
Thomson Reuters data.

Add to that a weaker-than-expected recovery in auto sales,
softening demand from China, GM’s pension shortfall and 2011
contract negotiations with the UAW, and it becomes more
important for GM to have a deep pool of investors than a
record-breaking IPO.

Further, investors drawn to liquidity may not see much of a
difference between a $10 billion IPO and a $20 billion IPO,
several sources said.

“Banks always like bigger deals rather than smaller deals
but all the banks recognize that there is $50 billion of stock
that needs to get sold over the next three years,” one source
said.

“Our perspective is going to be to sell as much as possible
in the first offering but not overwhelm demand in such a way
that the offering trades poorly and raises questions about when
the next offering can come,” the source added.

“Floating a deal into the market that doesn’t work is bad
for all the banks so I think everyone wants to find common
ground on size and price,” another source said.
(Reporting by Clare Baldwin in New York, additional reporting
by Kevin Krolicki in Detroit; Editing by Gary Hill)

IPO VIEW-GM IPO proves complex with competing interests