If GM's second and third largest shareholders opt to hold
their shares beyond the IPO, that would leave the Treasury as the only
stakeholder selling shares and could mean that the total value of the deal
could be at the low end of market expectations.
The US Treasury is still aiming to sell at least 20
percent of its stake in order to become a minority shareholder in the top US
automaker, five people familiar with the matter said.
The UAW's trust fund for retiree health care - known as
the VEBA - and Canada together hold just under 30 percent of GM common stock as
a result of the automaker's restructuring in a U.S. government directed
bankruptcy in 2009.
Both VEBA managers and Canadian officials have raised the
possibility of waiting until follow-on stock offerings in order to avoid
offering the hefty discounts typically required for initial offerings, the
sources said.
All of the people with knowledge of the discussions asked
not to be named because preparations for the deal remain private and tightly
controlled by US securities laws.
IPOs are typically discounted 10 percent to 15 percent
from theoretical fair value to reward investors for taking a risk on a new
issue and pave the way for future stock floats.
In GM's IPO, the discount could be as much as 20 percent,
sources have said. By comparison, follow-on offerings are typically priced just
3 percent to 7 percent below market.
Initial plans for the landmark IPO envisaged the two
other major shareholders selling the same proportion of shares as the US
Treasury, which holds 61 percent of GM after its $50 billion taxpayer-funded
bailout, sources had previously said.
All of the sources cautioned that no dollar amount has
been set for the IPO, adding that the number of shares to be sold and the
pricing will not be determined until after GM launches a road show for
potential investors in early November.
The potential withdrawal by the UAW and Canada as sellers
adds weight to the possibility that the offering could come in at the low end
of the expected range. The GM IPO has long been seen as raising between $10
billion and $20 billion, making it one of the largest US stock offerings ever.
Meanwhile, UAW President Bob King said on Friday that the
union could use the GM IPO to pressure J.P. Morgan Chase in a protest against
J.P. Morgan's refusal to declare a moratorium on foreclosures in Michigan and
as part of a labor dispute at RJ Reynolds. J.P. Morgan is one of the lead
underwriters on the GM IPO.
GM and the US Treasury have repeatedly declined to
comment on the IPO.
A spokesman for the UAW's VEBA was not available for
comment. The VEBA holds 17.5 percent of GM common stock. The governments of
Canada and Ontario have 11.7 percent.
"We intend to maximize return for Canadian taxpayers
and expect to reduce our ownership in GM as quickly as is appropriate," a
spokesman for Canadian Industry Minister Tony Clement said in an emailed
statement to Reuters.
US auto sales have been weaker than expected this year
and some analysts have also rolled back expectations for the strength of
recovery in 2011.
The prospect that a follow-on stock offering could correspond
to stronger signs of recovery for the industry and GM is a consideration that
could lead the UAW and Canada to hold off from selling in the IPO, the sources
said.
The US Treasury, meanwhile, is still seeking to get below
the 50 percent threshold if market conditions allow, to help distance GM from
the "Government Motors" tag that critics have applied, the sources
said.
With the approach of US midterm congressional elections
in November, the IPO remains a politically sensitive issue. The Obama administration
is eager to paint the auto industry bailout and GM's IPO as a success in the
face of continued voter skepticism.
GM needs to have a market valuation of about $67 billion
if US taxpayers are to break even on the common stock the Treasury still holds,
according to an estimate prepared by Neil Barofsky, inspector general for the
government's Troubled Asset Relief Program.
That excludes the $2.1 billion in preferred stock also
held by the US government.
