General Motors Co. has started out on the long road back to independence, filing registration papers Wednesday that clear the way for the U.S., Canadian and Ontario governments to unload their majority stake in the auto maker.
But GM will still remain firmly tethered to its government owners - perhaps long after the stock sale - according to the 700-plus-page filing with the U.S. Securities and Exchange Commission.
The IPO was code-named "Project Dawn" within General Motors, presumably to reinforce the point that the automaker's sojourn as a faltering ward of the state is nearly over. The humbled company has been anxious to silence jokes about "Government Motors."
And yet GM acknowledged the U.S. Treasury, which owns 61 per cent of GM, will still be able "to exercise significant influence over our business if it elects to do so." That sway extends to the selection of top executives, how much they're paid, what cars the company sells, contracts with auto workers and GM's ability to raise debt. The U.S. and Canadian governments will, however, relinquish their right to name directors after the offering.
The documents don't say how much of the company will be sold, at what price or precisely when. But analysts said the offering could be worth as much as $20-billion (U.S.), making it the largest in U.S. history. U.S. and Canadian governments pumped more than $60-billion (U.S.) into GM last year to rescue the faltering auto maker.
The U.S. government confirmed it intends to sell at least part of its stake, reportedly up to a fifth of its 304 million shares. That would be just enough to take it below the 50-per-cent ownership threshold.
The Canadian government, which along with the Ontario government owns another 11.7 per cent or 58 million shares, so far isn't saying if it intends to sell, apparently satisfied to wait and see what investors are willing to pay.
"Canada may participate in an initial public offering by General Motors, but any decision we take is with the goal of maximizing the return for taxpayers while reducing our ownership in the company as quickly as is appropriate," Finance Minister Jim Flaherty said in a statement.
Mr. Flaherty said the filing is the "latest sign that the company is on the road to recovery."
The government is intent on getting the best price for Canadian taxpayers, added Chisholm Pothier, Mr. Flaherty's communications director.
The 102-year-old auto maker is convinced it has a turnaround story to tell - one it hopes will make investors and consumers forget about the bailouts, the trip through U.S. bankruptcy court and its reputation for producing quantity over quality.
And the new GM is focused on profitably producing cars people want. GM has already slashed as much as $6,000 off the average cost of producing a vehicle since its bankruptcy filing, giving it an uncharacteristic cost edge over key rivals. It got there by unburdening itself of large debts and pension and health care obligations, as well as workers.
And last week, the company unveiled a healthy second quarter profit - $1.33-billion - and a new chief executive officer, Carlyle Group executive Dan Akerson, 61. GM lost a stunning $88-billion in the five years before it filed for bankruptcy protection last June, and those losses continued through the latter half of last year.
But the SEC filing makes it clear that its turnaround faces some major hurdles. The key risk factors affecting the future value of the shares include the success of its vaunted Volt electric car, turning around its ailing European operations, and the ability of Mr. Akerson and his newly installed team to quickly size up the auto industry and defend market share. While GM's market share in the U.S. slipped to 18.3 per cent in first six months of 2010 from 19 per cent in same period a year earlier, the decline was far more steep in Canada: market share fell to 15.5 per cent from 18.4 per cent in the same periods, GM said in its SEC filing.
GM also disclosed that it owes $27.4-billion to the employees' pension fund.
GM isn't expected to pocket any of the proceeds from the sale of its common shares. But it also said it's planning an issue of preferred shares, and that cash would go to the company.
RBC Dominion Securities Inc. is part of a roster of underwriters for the stock sale, which is being lead by Morgan Stanley & Co. and J.P. Morgan.
The stock offering will mark a return of GM to the Toronto Stock Exchange after a five-year hiatus. The company's shares had traded on the TSX from the 1970s to 2005, but interest had sagged. In 2004, for instance, GM traded fewer than 800,000 shares in Canada - far less than 1 per cent of the stock traded on the New York Stock Exchange. The next year, the company abandoned its Canadian listing to save costs and avoid redundant regulatory requirements.
Last year, the federal and Ontario governments pumped $10.5-billion into the then-faltering company while the U.S. ponied up another $50-billion. Aside from the U.S. and Canadian governments' stake in GM, a workers' health care trust and bondholders own much of the rest of the company.