General Motors Co. has got to be envious of Ford Motor Co., which has taken its place as Detroit’s darling. But as GM prepares its initial public offering, Ford’s rising shares could actually benefit GM.
As Ford is GM's only major US-listed competitor, company investors and bankers are turning to Ford as they attempt to determine the GM’s theoretical value ahead of the high stakes IPO. The value of GM could be calculated several ways.
One method is to use a multiple of its projected cash flow based on Ford's multiples. Another way is to do an implied value calculation based on where GM bonds are trading.
Initial expectations have been for GM's IPO to weigh on Ford's shares, which have risen sharply since achieving a record $1.02 low in November 2008 and were trading around $12 when reports of GM's stock float first came out last May.
Ford executives were asked constantly to evaluate the risk that mutual funds and other institutional shareholders might "rebalance" their portfolios, dumping Ford stock and purchasing GM.
GM Chairman Ed Whitacre remarked last month that GM shares are likely to be priced between $20 and $25 in the IPO this November. While sources knowledge of the developing deal confirmed the fact that the shares will be priced near the $20 to $25 range, that was the first time when GM has commented on the issue.
"It's a little too early to say, but it is going to be somewhere in the $20 range... $20, $25, something like that would be my guess," Whitacre quipped. He added that while it is a little too early to tell, but the price of GM shares in the IPO would be “somewhere in there."
A pitch to retail investors is expected to be a major focus in the GM IPO, although U.S. securities regulations don’t allow this. GM had extended a deadline for 600,000 workers, retirees and dealers in the United States and Canada in order to register to buy shares in the IPO.
While Whitacre couldn’t say how large GM IPO would be, he predicted that it will be a success in reducing U.S. government's 61 percent stake in the top U.S. automaker. For those who don’t know, the Obama administration gave GM $50 billion in U.S. taxpayer funding.
In the past months, it was reported that the UAW's trust fund for retiree health care -- known as the VEBA -- and the governments of Canada and Ontario would opt out of participating in the IPO so their shares won’t take a price cut.