GM leveraging investment banks to sell cars as well as IPO Shares

GM leveraging investment banks to sell cars as well as IPO Shares

 

Since General Motors Co. announced its initial proposal for public offerings this past May,

GM has been squeezing concessions from banks vying for a role in what may be the second-biggest IPO in U.S. history. JPMorgan Chase & Co. and Morgan Stanley won the lead mandate in June and agreed to fees of 0.75 percent of the sale, a quarter of the usual rate for large stock sales

The automaker is also requesting help selling cars not just Shares, biding banks are required to consider using some of the underwriting fees to subsidize the purchase of GM cars by their employees.

Understanding the background

The Treasury wants to keep fees for the IPO low because GM still is recovering and needs to conserve cash, It will also take advantage of any bank it can!

The US Government is playing hard Ball, some analysts say. The Obama administration is wary of paying Wall Street banks large fees after bailing some of them out with government funds, it also feels the banks should bend to help out U.S. Treasury, which owns 61 percent GM

GM sent the request for proposal before it agreed to fees with its lead banks. JPMorgan had already offered to accept payment in equity instead of cash but the their offer was rejected,

How the roles have changed in investment banking:

In the past odd requests were unheard of, the back usually held the controls of what, when and how much but with the way the market is going and the lack of companies vying for business banks are willing to go the extra mile when gathering clients

 

If market conditions permit GM will file a prospectus next month with shares to be sold as soon as November. GM plans to sell 20 percent of U.S. Treasury’s stake reducing the government’s share to less than 50 percent

 

The sale is expected to rise over $10 billion to $15 billion, considering 3 factors

• Strength of the economy


• Company’s performance


• Health of the IPO market

To understand how big this deal is only four U.S. IPOs have exceeded $5 billion since 1999

• Visa Inc.’s $19.7 billion deal in 2008


• AT&T Wireless Group’s $10.6 billion offering in 2000


• Kraft Foods Inc.’s $8.68 billion deal in 2001


• United Parcel Service Inc.’s $5.47 billion sale in 1999

 

Source: [ Bloomberg and WSJ ]