IPO VIEW-U.S. taxpayers could profit on pre-owned GM

* GM IPO as soon as Q4, registration seen as soon as July

* Market value must top $70 bln to make taxpayers whole

* Analysts see GM value as high as $90 bln in deal

By Soyoung Kim

DETROIT, June 11 (BestGrowthStock) – When GM was sputtering toward
collapse last year, it was hard to see how the U.S. auto market
leader could keep selling cars — let alone how it could one
day sell itself as a success story to investors.

But almost a year after emerging from an unpopular U.S.
government-funded bankruptcy, GM is driving toward a stock
listing that could deliver a paper profit to U.S. taxpayers and
an important political win for the Obama administration.

Analysts estimate that a GM initial public offering could
value the company between $70 billion and $90 billion — above
the peak of the automaker’s market value near $60 billion in
2000 when it was riding high in a booming market for SUVs.

GM and the U.S. Treasury are now readying an initial public
offering of GM stock that would reduce the U.S. government’s
nearly 61 percent ownership stake.

The Treasury, which has hired Lazard Ltd (LAZ.N: ) as adviser
on the IPO, said on Thursday it expected to sell part of its
stake when GM goes public as early as the fourth quarter.

JPMorgan Chase & Co and Morgan Stanley are set to be named
underwriters for the GM deal, a source told Reuters on Friday.

Figuring out how investors will value the new GM is tricky,
but analysts say trading in bonds issued by the pre-bankruptcy
automaker and a comparison with its closest rival, Ford Motor
Co (F.N: ), underscore the surprising scale of its turnaround.

Any equity value for GM above $70 billion will result in a
paper profit for the U.S. Treasury, which poured more than $50
billion into GM and retains a 60.8 percent ownership stake.

“Everybody will look at this valuation as a sign of success
for this corporation and the bailout,” said a person who has
worked with the Obama administration’s autos task force, but
who was not authorized to discuss the matter for attribution.

Based on bonds issued by the old GM, the new GM could be
worth as much as $88 billion after going public again.

The $27 billion in bonds issued by the pre-bankruptcy GM
represent a 10 percent equity stake in the new company under
the terms of the restructuring negotiated by the White House.

The old GM bonds have been trading at between 31 cents and
32.5 cents on the dollar this week as talk of an IPO heated up.
That represents an implied equity value of between $8.4 billion
and $8.8 billion for bondholders and up to $88 billion for the
whole company.

A valuation for GM at the high end of that range would also
mean taxpayers could be sitting on unrealized profits of about
$10 billion on the government’s stake in the automaker.


The projected GM valuation would far exceed some $38
billion market value of Ford Motor Co (F.N: ), but trail the
nearly $120 billion value of Toyota Motor Corp (7203.T: ).

Ford, the only U.S. automaker to have avoided bankruptcy
and bailout, trades at about 4.3 times a projected measure of
its cash flow.

That category of cash flow — earnings before interest,
tax, depreciation and amortization, or EBITDA — is expected to
be $8.9 billion this year for Ford, according to the average
analyst forecast as tracked by Thomson Reuters I/B/E/S.

JPMorgan debt analyst Eric Selle sees GM’s 2010 EBITDA at
$11.4 billion, which would value the company at around $50
billion. But Selle reckons GM’s shares may be worth a higher
multiple of cash flow because the company has far less debt. He
sees a $90 billion GM equity valuation as reasonable.

While Ford carried $34 billion of debt on its balance sheet
at the end of the first quarter, a comparable long-term debt
number for GM was near $14 billion.

“When you look at the enterprise value, you have to look at
the value of debt and equity. For GM, more enterprise value
belongs to equity holders than it would for Ford’s case,” said
Morningstar analyst David Whiston.

GM’s U.S. sales rose 14 percent through May for 19 percent
of its home market. Ford’s U.S. sales were up 30 percent in the
same period, but it remains No. 2 with 17 percent market

“Ford may be doing all the right things, but it is still a
smaller company,” said Chris Price, managing director of
investment banking at O’Keefe & Associates.

Still, the path to a GM IPO will not be smooth. The
automaker still needs to restructure its European unit, Opel,
and it remains at risk of being hit by a double-dip downturn.

“The automotive recovery is really only about six months
old. It’s still early to get really excited,” Price said.

U.S. auto sales are expected to rise 10 percent to over
11.5 million vehicles in 2010 after tumbling to a 27-year low
last year. But most expect a still-tentative recovery in 2011.

“If the global economy is still uncertain it’s going to
make pricing of the IPO more difficult,” said IPOdesktop.com
President Francis Gaskins.

Stock Analysis

(Reporting by Soyoung Kim; additional reporting by Kevin
Krolicki in Detroit, Clare Baldwin and Dena Aubin in New York)

IPO VIEW-U.S. taxpayers could profit on pre-owned GM