Windsor Star


Analysts look beyond IPO success


GM went public Thursday in a $20 billion-plus stock offering. Shares accelerate­d smoothly on their first day of trading.

Excitement surroundin­g the return of General Motors to the stock market ignited a rush to buy shares on Thursday, raising up to US$23 billion for the Detroit-based automaker.

But despite the day’s success — the share offering was one of the largest on record — it will take time to determine the automaker’s true value, a Windsor investment expert cautions.

“There’s a lot of interest in the new issue for mostly emotional reasons, but the real money is waiting to see how the stock performs before they’ll touch it,” said Jason Smith, adviser at RBC Dominion Securities.

Smith, who manages investment portfolios of high net worth clients, said some of his clients, including a couple of former GM employees, purchased shares.

General Motors went public again big time when it sold 478 million shares of common stock at US$33 a share, and $4.35 billion in preferred shares. GM opened at $35.40 a share — up $2.40 over the price that investors had paid on Wednesday. In heavy trading of more than 300 million shares, GM hit a high of $35.99, before closing at $34.01.

The IPO was a dramatic reversal for the company, which went from hobbling out of bankruptcy restructur­ing last summer to being the toast of both Bay and Wall streets on Thursday.

“Going public is an important milestone on our way to being a new and better GM,” said Dan Akerson, GM chief executive, on a conference call Thursday. “The market has shown a lot of enthusiasm for GM, and for good reason. We have a lot going for us right now and it starts with designing, building the world’s best vehicles.”

GM’s bankruptcy restructur­ing stripped away much of its debt and legacy costs. GM’s management said it remains committed to paying down the remainder of its long-term debt in the coming years.

A series of positive announceme­nts in the lead up to the offering, aided by an impressive third-quarter profit last week of $2 billion, help to bolster GM’s sales pitch to investors.

“The bottom line is actually the bottom line,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. “If you can make $2 billion in a quarter in a depression level auto market, it tells you if things improve — and even if they don’t improve — that you can make a lot of money. It tells you their trajectory if the market improves.”

As part of its organized bankruptcy, both the U.S. and Canadian government­s became GM shareholde­rs. While Washington and Ottawa have said they will eventually sell all their shares, Ken Lewenza, president of the Canadian Auto Workers union, urged the government to keep its seat in the board room.

“The best choice for taxpayers and Canadian workers would be for government to retain a significan­t portion of its shares, to help ensure that the company maintains its Canadian manufactur­ing footprint and preserves Canadian jobs,” said Lewenza.

Lewenza said General Motors’ turnaround proves the importance of government interventi­on when key industries like the auto industry falter due to free-market problems such as the credit freeze and the financial crisis of 2008-2009.

“Without crucial government support, we would have lost more than 9,000 jobs at GM and tens of thousands more auto-parts and spinoff jobs,” he said. “Government did the right thing in stepping in to preserve these jobs, especially as hundreds of thousands of Canadians were being thrown out of work during the recession.”

However, Mark Meldrum, a business professor at the University of Windsor and profession­al investor, said unions and their demands are primarily responsibl­e for the company’s woes, and will continue to be a drag on profitabil­ity.

“I don’t like car companies.” said Meldrum. “In my view, the long-term price on GM is zero again.

“The union, it’s not going to take them long before they want everything back they gave up. They can strike, they have power, they can shut GM down and they’re not going to be nice about it.

“You need to break the back of the union and then I’ll like car companies.”

Lewenza dismissed Meldrum’s comments as “rhetoric that doesn’t come with any substantia­tion.”

He pointed to Volkswagen and Daimler as two profitable companies with unionized workforces. He also said it is reasonable for workers to share in a company’s success.

“It’s OK for investors to get a return. Why isn’t it OK that workers seek some return of the sacrifices they’ve made?”

During last year’s massive restructur­ing of GM and Chrysler, the CAW was forced to negotiate cost-cutting agreements.

Contract talks are set to resume in 2012, but the union has yet to set its priorities, Lewenza said.

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 ?? RAMIN TALAIE/Bloomberg ?? Traders crowd the floor of the New York Stock Exchange on Thursday when General Motors went public,
raising up to US$23.1 billion in the share offering and making it one of the largest on record.
RAMIN TALAIE/Bloomberg Traders crowd the floor of the New York Stock Exchange on Thursday when General Motors went public, raising up to US$23.1 billion in the share offering and making it one of the largest on record.

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