U.S. Government ownership stake in GM expected to fall to 26%

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GM shares open at $35
The automaker's stock starts trading at $35 after its IPO is sold for $33 a share. Volume is heavy. Ford slides on a downgrade. Toyota and Honda push higher.
Posted by Charley Blaine Wednesday, November 17, 2010 5:22:01 PM
Updated: 11:50 a.m. ET, Thursday

It took a few minutes for the first trade to get done, but General Motors (GM) shares opened for trading at $35, a 6% gain over the $33-a-share price for its initial public offering.

The first trade on the floor of the New York Stock Exchange came at 9:36 a.m. ET. The shares hit $35.99 within a few minutes before settling back to $35.12, up 6.4%, at 11:50 a.m. ET.

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The GM open came on a big rally for U.S. stocks. The Dow Jones industrials ($INDU) were up 170 points, or 1.5%, to 11,178 at 11:50 a.m., in part on hopes that a solution would be found to rescue Ireland's ailing banks. Energy and commodity stocks were higher as the dollar pulled back.

At 11:55 a.m., about 252 million GM shares had changed hands -- about 53% of the 478 million shares sold late Wednesday in what is the largest U.S. initial public offering. It ultimately may be the biggest IPO ever.

Trading in the shares began on the New York and Toronto stock exchanges. The ticker in New York is GM, and in Canada it's GMM.

Ford shares drop; Toyota rises
As the hoopla around GM continued, shares of Ford Motor (F) were down 2.1% to $16.34. Ford was downgraded to "neutral" from "buy" by Buckingham Research in New York. Ford shares are off more than 5% since hitting a seven-year high of $17.42 on Monday.

Ford is also cutting its stake in Mazda, the Japanese auto maker, to 3.5% from 11%.

Shares of Toyota Motor (TM) were up 1.5% to $76.97 in New York. The company announced it is cutting production of its Prius hybrid cars sold in Japan by more than half because of weak demand. The government is reducing subsidies for the vehicle.

Honda Motor (HMC) shares were up 2.9% to $38.02 in New York.

A bigger IPO than Visa
In addition to the 478 million common shares, GM sold 87 million shares of preferred stock at $50 each, raising $4.35 billion. That would bring the total amount raised Wednesday $20.1 billion, larger than the $19.1 billion that Visa (V) raised when the credit card processor went public in March 2008.

It is possible that GM will rise 10% to 15% during the day. That's a bit lower than the 25% gains often seen on a first day of trading, The Wall Street Journal said. But some of the gain was sopped up with the $33 IPO price.

It's expected that because of the demand for the common and preferred shares, GM will make an additional 71.7 million common shares available in what's called an "overallotment" or "greenshoe," the Journal said.

It will probably sell an additional $650 million in preferred shares. That will bring the total amount raised up to $23.2 billion. That would be larger than the largest IPO now on record: a $22.1 billion IPO sold by the Agricultural Bank of China earlier this year.

Lots of interest
The GM IPO attracted huge amounts of publicity and interest, so much so that GM was able to boost the minimum size of the common-stock offering to 478 million shares from an original estimate of 365 million.

GM and its underwriters were also able to boost the price from an original estimate of $26 to $29 a share.

Much of the excitement stems from GM's return to profitability. The company reported a $2 billion profit in the third quarter. CNBC's Phil LeBeau noted Wednesday that it is earning a profit of $3,005 per car in North America right now. In 2008, before it went into Chapter 11 bankruptcy in 2009, it was losing $1,191 per car.

Its operations in Asia, especially China, are quite profitable and growing. Its one market with troubles is Europe.

Proceeds from the IPO and the preferred-stock sale will go largely to the U.S. government, whose 61% stake will be reduced to about 26% once the greenshoe shares are sold.

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