No Runny Eggs

With 478 million of 1.5 billion shares in Government Motors expected to hit the New York Stock Exchange tomorrow under the GM ticker, I thought it would be good to put together a little FAQ on the IPO based on the latest revision of GM’s registration statement at the SEC containing GM’s common stock prospectus, filed early this morning. I can’t stress this enough – This is not a recommendation or solicitation to either buy or not buy shares in any company.

• Who is offering the common shares in GM? Three of the four current owners of Government Motors are offering some of their shares – the United States Treasury, Canada Holdings (a Canadian government-owned entity), and the UAW Retiree Medical Benefits Trust. The fourth owner, Motors Liquidation Company (on behalf of the bondholders of the former incarnation of General Motors, with the stock to be distributed to the bondholders upon final liquidation of MLC), is not involved in this sale. Further, GM is not offering any new shares for sale.
• How many common shares are each of the entities offering? The Treasury is putting up 358,546,795 of its 912,394,068 shares (roughly 39.3% of its current holdings). The Canadian government is putting up 30,453,205 of its 175,105,932 shares (roughly 17.4% of its current holdings). The UAW is putting up 89,000,000 of its 262,500,000 shares (roughly 33.9% of its current holdings). In addition, each of the three entities have given the underwriters a 30-day option to buy up to an addditional 71,700,000 shares to cover any over-allotments in the IPO process at approximately the same ratio as the “main” offering (a maximum of 53,782,019 shares by the Treasury, 4,567,981 shares by the Canadian government, and 13,350,000 shares by the UAW).
• How much of the common stock will each of the 4 current entities hold after the IPO, and how much will be available for the public? Assuming no over-allotment option exercise, the Treasury will hold 36.92% of the stock (down from the current 60.83%), the Canadian government will hold 9.64% (down from 11.67%), the UAW will hold 11.57% (down from 17.50%), MLC (on behalf of the bondholders) will continue to hold 10.00%, and 31.86% will be available for the public. If the over-allotment option is exercised in full, the percentages will change to 33.34% for the Treasury, 9.34% for the Canadian government, 10.68% for the UAW, 10.00% for MLC (on behalf of the bondholders), and 36.65% for the public. Of note, as the single largest shareholder even with full over-allotment exercise, the Treasury will maintain effective control over Government Motors. Also, do note that both MLC and the UAW hold warrants to purchase new-issue common stock.
• Where can I get the stock? The New York Stock Exchange has approved the listing of stock under the symbol GM. The Toronto Stock Exchange has conditionally approved the listing of stock under the symbol GMM.
• Who gets the money from the IPO of the common stock, and about how much will each entity get out of it? The current holders of the stock and the underwriters get the money, not GM. Earlier reports suggested that the common stock would be offered at $25/share. Current estimates are that it could be as high as $33/share. At the lower $25/share amount, after the underwriter discount and commissions, and other fees, the Treasury should net approximately $8.74 billion, the Canadian government approximately US$742 million, and the UAW approximately $2.17 billion. At the higher $33/share amount, the Treasury should net approximately $11.53 billion, the Canadian government approximately US$980 million, and the UAW approximately $2.86 billion.
• What are the prospects of a dividend on common stock? None can be paid until dividends on both Series A Preferred Stock (currently held by mostly the UAW and also the Treasury and Canadian governments) and new-issue Series B Preferred Stock are paid.
• What’s this Series B Preferred Stock? It’s a new issue being held simultaneously with with the IPO of common stock. 80 million shares will be offered at $50 per share, a mandatory conversion to common stock sometime in 2013 (date and conversion ratio not yet specified), and a yet-to-be-determined rate of dividend based on the $50/share price. Unlike the common-stock IPO, GM will get the money from this as it is a new issue of stock, estimated at $3.9 billion (or $4.4 billion if that offering’s over-allotment option is fully-exercised).
• I heard something about GM buying back the Series A Preferred Stock from the Treasury. What’s up with that? On October 27, GM and the Treasury entered into an agreement to allow GM to buy back the Treasury’s holdings of 83.9 million shares of Series A Preferred Stock three years (and change) earlier than the terms of that stock allowed. Under the former terms, which still apply to the stock held by the Canadian government and the UAW, the stock earned a 9% annual dividend (based on the liquidation price of $25/share), and the stock could not be liquidated prior to December 31, 2014 at $25/share plus any unpaid dividend. Under the terms of the sale, GM agreed to pay $25.50/share (a premium of $0.50/share), a total of $2.14 billion (a total premium of $41.9 million), and the Treasury agreed to forgo a minimum of $755 million of dividends. That money, as well as a portion of a $4 billion voluntary contribution to US hourly and salaried pension plans, will come from the proceeds of the sale of Series B Preferred Stock.