Demand for GM IPO: Was the Price Set Too Low?
If the GM IPO prices at the high end of the range, it will take the portion of the company owned by the Treasury to about 40%, down from the current level of 61%. Even at the current IPO price level, taxpayers will not get their investment in GM back.
Part of the surge in demand is due to the desire by a large number of institutional investors, some of them from outside the U.S. Another important dynamic of the transaction is that GM China partner SAIC Motor Corp. plans to put money into the deal. According to The Wall Street Journal "China's biggest auto maker, SAIC Motor Corp., is negotiating to acquire a stake of about 1% in General Motors worth about $500 million."
The tremendous desire by "smart money" ranging from large pools of capital to China's largest car company raises the thorny question of whether GM's board and its investment bankers priced the shares far too low. A 5x demand for the stock being sold would certainly seem to indicate that. This means that GM's shares will rise after they begin to trade. It will also mean the No.1 US car company probably left a lot of money on the table.
GM, newly risen from the ashes, has not made many mistakes in restructuring after it exited Chapter 11. But, the pricing of its IPO looks like a big one.