According to sources, it’s possible that the UAW health care trust and the governments of Canada and Ontario will opt out of participating in General Motors Co.'s stock offering so that their shares won’t take a price cut.
In the event that second and third biggest shareholders decide to hold their shares through the IPO, it would mean that the Treasury would be the lone stakeholder trying to sell off its shares.
What this means ultimately is that the total value of the deal would be at the low end of market expectations. The sources added that the US Treasury, which holds 61% of GM after its $50 billion taxpayer-funded bailout, is hoping to sell at least 20% of its stake so that it would become a minority shareholder.
After GM’s restructuring in a US government directed bankruptcy in 2009, nearly 30% of its common stock ended up with the UAW's trust fund for retiree health care -- known as the VEBA -- and Canada.
The sources added that to avoid offering the large discounts expected for initial offerings, both the VEBA managers and Canadian officials have considered waiting until follow-on stock offerings.
The sources of this report declined to be identified because the preparations for the deal are private and are strictly regulated by US securities laws. Typically, IPOs are discounted 10% to 15% from theoretical fair value to entice investors to take a risk on a new issue and lead the way for future stock floats.
The sources indicated that the discount could be as high as 20% in GM's IPO. Follow-on offerings are customarily priced only 3% to 7% below market. Sources have shared previously that the original plans for the landmark IPO had anticipated that the two other major shareholders would sell the same proportion of shares as the US Treasury. [via autonews - sub. required]