When is the GM IPO? (Wall St Journal)

The Big Guns Coming Out for GM Deal

By RANDALL SMITH And SHARON TERLEP

Wall Street bankers are salivating over one of their biggest potential paydays since the market meltdown of 2008: the planned initial public offering of General Motors Co.

With a size that may top $10 billion, the GM IPO could generate fees of $275 million or more for the Wall Street underwriters, the most fees from a single stock deal since the $19.7 billion IPO of credit-card giant Visa in March 2008 generated $550 million.

Some Wall Street bankers said they expect the GM initial public offering will be led by just two firms, who would typically command the lion's share of the fees.Above, GM's world headquarters in Detroit.
All of which explains why top officials of several major financial giants personally participated in what is known on Wall Street as a "bake-off," a series of meetings in which the bankers present their best ideas for how to sell the stock.

James Dimon of J.P. Morgan Chase & Co., John Mack of Morgan Stanley and Brian Moynihan of Bank of America Corp. all personally took part in the meetings with officials of both GM and the U.S. Treasury Department, which acquired its current 61% stake in a $50 billion bailout last year.

Vikram Pandit of Citigroup Inc., who was visiting Citi offices in Mexico, took part by phone. Although Lloyd Blankfein of Goldman Sachs Group was in London, Goldman's president, Gary Cohn, attended, along with David Solomon, the firm's co-head of investment banking.

Other firms sent some of their best-known personalities as well. For example, Mr. Dimon attended with James B. Lee, the well-known top deal maker at J.P. Morgan. The Citi delegation also included John Havens, head of Citi's institutional-clients group, and Tyler Dickson, the firm's head of global capital-markets origination. The bake-off meetings were previously reported by Fox Business.

Before the bake-off pitches, the Wall Street firms were sent questionnaires asking how they have supported GM in the past, according to one person told of the meetings.

Some Wall Street bankers said they expect the GM deal will be led by just two firms, who would typically command the lion's share of the fees. Firms with armies of retail brokers such as Morgan Stanley and Bank of America, which has brokers from Merrill Lynch, could have an advantage. Another firm with an edge is J.P. Morgan, which has been the biggest lender to the auto industry over the past decade, one person said.

Although the value of GM's former common stock was vaporized in its visit to bankruptcy court last year, the No. 1 U.S. auto maker by sales has been able to slash its debt from $45.9 billion at the end of 2008 to less than $10 billion currently.

It isn't clear yet to what extent GM's other shareholders will sell stock in the offering. They include a union trust for retired auto workers, which holds 18%, the Canadian government, which owns 12%, and former debt holders who own 10%.Some Wall Street analysts estimate GM's market value could top that of Ford at $41 billion and even exceed $70 billion, the level needed for the U.S. government to break even on its investment. That would top GM's peak market value of $60 billion in 1999, when both the stock market and sales of high-profit sport-utility vehicles were booming. Two months ago, J.P. Morgan Chase debt analyst Eric Selle put GM's stock-market value at $90 billion. By comparison, the market value of Toyota is $116 billion.

The Obama administration has said it is hopeful GM can make an offering by the end of this year and is eager to shed its stake in the company, though the auto maker and the Treasury have stressed that the timing is up to GM.

The company doesn't want to rush the offering and would prefer to address some issues—namely its lack of a company-run finance arm and losses in Europe, the site of clashes with labor and state governments over layoff plans—said people with direct knowledge of the company's strategy.

The IPO pickings have been slim for Wall Street ever since the Visa deal. After peaking at $55.3 billion in 2007, the volume of U.S. IPOs tumbled 70% to $16.7 billion last year, Dealogic said. The biggest U.S. IPO since Visa was just $2.2 billion, Verisk Analytics from last October.

The U.S. Treasury recently chose Lazard Ltd. to advise on the IPO. Among those playing a lead role in the underwriter selection are the Treasury's "car czar," Ron Bloom, himself a Lazard banker in the 1980s, and GM Chief Financial Officer Chris Liddell, an alumnus of software giant Microsoft Corp.

In its most recent financial report, GM showed a profit of $863 million in the first quarter of 2010, compared with a $6 billion loss a year earlier, marking the auto maker's first profitable quarter since 2007. Revenue grew 40% to $31.5 billion, and the company generated $1 billion in cash.

GM has cut its costs in the past few years. Deutsche Bank analyst Rod Lache estimates GM cut fixed costs in North America to $20 billion from $40 billion in 2008. He says the recent results show "these guys are building momentum and they have a lot of positives happening."

Earlier in the decade, the auto maker needed U.S. sales to reach 16 million to 17 million annually to make money. Today, GM says it can be profitable in the U.S. market with 10.5 million sales; analysts expect 11.5 million this year. Because bankruptcy slashed GM's debt, interest costs fell to $337 million in the first quarter, less than one-third the former level. Shifting retiree health costs to a union trust fund and other changes to retirement benefits reduced annual costs by another $3 billion.

Write to Randall Smith at randall.smith@wsj.com and Sharon Terlep at sharon.terlep@wsj.com