NEW YORK (Reuters) – Strong investor demand has driven the price range of GM's IPO to between $32 and $33 per share, taking the U.S. government closer to breakeven on its controversial investment in the top U.S. automaker, two people familiar with the matter said on Monday.
In addition, the U.S. government could opt to sell more shares than first planned in the initial public offering while GM could offer additional preferred shares, the sources said.
The prospect for a higher GM share price and an increased offering size mean that the initial loss to U.S. taxpayers from the bailout of General Motors will be more limited than initially thought.
GM had earlier filed to sell common shares for $26 to $29 each. The move to the higher range would represent an 18 percent increase at the midpoint.
An increase in the $3 billion in preferred stock that GM had first planned to offer would strengthen the automaker's balance sheet since those shares represent a new issue.
A filing with the U.S. Securities and Exchange Commission that raises the offering price range has been prepared and is expected to be filed shortly, one of the people said.
Based on a diluted share count of 1.9 billion, $33 per share would give GM a market value of about $63 billion. GM needs a market value of roughly $70 billion for U.S. taxpayers to break even. The U.S. Treasury owns nearly 61 percent of GM as a result of its $50 billion taxpayer-funded bailout.
By comparison, Ford shares hit an eight-year high on Monday, valuing the No. 2 U.S. automaker at about $59 billion.
GM earlier filed to sell about $10 billion worth of common stock at the midpoint, and $3 billion worth of preferred shares, but was seeing out-sized demand.
A higher share price reflects growing investor confidence in GM, which emerged from a U.S. government-financed bankruptcy in 2009 with sharply lower costs and higher profit potential.
"Demand is high and the range is moving up. GM is in an easy position to ask for a higher price," one of the sources said.
An over-allotment option, or so-called green shoe, would be valued at another $1.8 billion at the midpoint of the new price range. That green-shoe option is expected to be exercised, sources have said.
IPOs are typically priced at a 10 percent to 20 percent discount to reward investors for taking a risk on a new issue.
But some analysts said the initial GM IPO pricing set the value of the top U.S. automaker at an even sharper discount to what their models suggested GM was worth given its projected cash earnings and comparison with its smaller rival Ford Motor Co.
SAIC Motor Corp, GM's longtime partner in China, is prepared to take a stake of at least 1 percent in GM as part of the IPO if the Chinese government approves the investment, people briefed on the matter said.
GM's IPO is expected to price on Wednesday and begin trading on the New York and Toronto Stock Exchanges on Thursday.
The former head of the Obama administration's auto task force, Steve Rattner, said on Monday that GM's IPO was set to price above the top end of the previously announced range.
"Absent some dramatic change in the world in the next 48 hours, this will definitely price above the range," Rattner told Reuters in Detroit.
The success of GM's IPO, coupled with renewed investor confidence in the auto market, will also help Chrysler's bid to return to the stock market in the second half of 2011, Rattner said.
GM lost $88 billion from 2005 through just before its 2009 bankruptcy. Underscoring its turnaround, GM earned a $4.1 billion net profit in the first nine months of the year and is on track for its first full-year profit since 2004.
Rattner told Reuters that the stakes to be taken in the new GM by SAIC and other foreign investors should not color U.S. consumer perceptions of the automaker.
"All kinds of public companies in this country have significant foreign ownership... we now live in a global economy," Rattner said.
Sovereign wealth funds in the Middle East and Asia have committed about $2 billion to the IPO, sources have told Reuters. While the investment by overseas state-backed funds could create a political backlash, GM's advisers and underwriters have consistently argued that such investments could contribute to the long-term stability of the stock.
(Reporting by Soyoung Kim, Clare Baldwin in New York and Philipp Halstrick in Frankfurt, writing by Kevin Krolicki in Detroit, additional reporting by James Kelleher in Detroit; Editing by Phil Berlowitz, Matthew Lewis, Gary Hill and Bernard Orr)
