It will be "a tough sell" for General Motors Co. to convince investors to buy shares in its initial public offering, according to Peter Jankovskis, who oversees $2.3 billion as co-chief investment officer at OakBrook Investments in Lisle, Ill.
For GM to succeed, investors have to overlook the declining market share, its record of only being profitable for less than a year, and the new management.
Last Wednesday, GM revealed that its North America market share could drop by 2014. It also predicts that growth will slow in the second half of the year after having returned to profitability only in the past two quarters.
Data compiled by Bloomberg indicate that GM will require a market capitalization of $69.4 billion after the IPO for the government to be able to break even on its investment.
This stands for more than three times the value of GM's equity at the end of the last bull market in US stocks. It is also 65% higher than Ford Motor Co.'s market capitalization of $42 billion.
GM's filing with the US Securities and Exchange Commission enumerated the obstacles that it will have to overcome in order to generate enough investor demand to complete an offering that insider sources have said may be as high as $16 billion.
Jankovskis said that investors may be hesitant because GM has only posted two quarterly profits and the CEO is leaving. He said that these factors aren't typically linked with an "IPO that's going to be highly subscribed." [via autonews]