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Treasury wants 'ample opportunity' for small investors to buy GM shares

The U.S. Treasury on Friday sought to assure small investors that if they want a piece of General Motors Co.’s planned initial public stock offering, Uncle Sam will make sure Wall Street lets them in.

In a statement on the FinancialStability.gov website, the Treasury listed guidelines it expected Wall Street brokerages and GM to follow in the sale, which will allow the government to begin cashing out of the 60.8% stake it took in the automaker as part of last year’s bailout.

No timetable has been set for the offering but it's expected before the end of the year.

Although the Treasury said it would "not involve itself in decisions regarding allocation of shares to specific buyers,” it would satisfy itself that GM was adhering to the government’s guidelines.

One of those guidelines: “We expect that interested retail purchasers will be given ample opportunity to participate, consistent with appropriate commercial practices aimed at maximizing our return and creating a stable trading market for the shares,” the Treasury said.

GMlogo New stock issues can be notoriously difficult for small investors to buy in an initial offering, at least for shares that big investors such as hedge funds and mutual funds are eager to own. Brokers always are going to favor their best customers in allocating new offerings.

What’s more, the idea of the government “maximizing its return” could be at odds with how new stock deals are sold. Brokerage underwriters typically try to underprice a deal so that the stock rises on the first day of trading -- a pop that rewards the buyers who stepped up for the offering.

But underpricing the GM offering for a first-day pop would mean limiting the proceeds the government (i.e., taxpayers) would receive in selling its shares to recoup the $50 billion bailout cost.

In the statement, the Treasury also said it expected the deal to be sold “across multiple geographies with a focus on North American investors,” which may be the Obama administration’s way of saying that foreign investors will be welcome, but not overly welcome.

Reuters, citing unnamed sources, reported Friday that Chinese automaker SAIC MotorCorp “has reached out to General Motors to explore the prospect of taking a stake in the U.S. automaker when it goes public this fall.”

GM last month filed a prospectus for the stock sale but didn’t provide key details, including how many shares would be sold by the government or other shareholders. The 39.2% of GM not owned by the U.S. is held by the Canadian government, the United Auto Workers and GM's former creditors.

The Treasury on Friday didn’t provide estimates of how much it might want to sell in an initial offering.

On Thursday, GM’s new CEO, Daniel Akerson, estimated that it would take a “couple of years” and multiple stock sales for the government and other shareholders to cash out their stakes.

Last month, some Wall Street analysts estimated that the Treasury and other shareholders would sell enough stock to raise between $15 billion and $20 billion in the initial sale.

-- Tom Petruno
 
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