Ask The Best And Brightest: Who Will Be GM's "Cornerstone Investors"?

by Edward Niedermeyer

Published: August 17th, 2010

ask the best and brightest who will be gm s cornerstone investors

GM’s IPO filing still has yet to appear on the SEC’s EDGAR database, but while we wait for the S-1 form to clear, Reuters has some details on what to expect from the sale. The big news:

GM is mulling a plan under which sovereign wealth funds or pension funds would serve as “cornerstone investors,” a technique often used for large initial public offerings to show that key investors are supporting the deal, four people said…

Each cornerstone investor would likely be asked to commit to buying 2 percent to 10 percent of the IPO and cornerstone investors would likely account for 10 percent to 30 percent of the total IPO, one of the sources said.

On the other hand, another source says GM is targeting 15 percent of its equity towards cornerstone investors, with 20-25% is aimed at the retail investment market. Either way, Reuters points out that another recent large IPO of a government-owned business, the Agricultural Bank of China, relied heavily on cornerstone investors… but that the politics of such a strategy could be risky.

After all, Chinese, Indian and Latin American investors have strong incentives to invest in GM, which has strong presences and growth opportunities in those regions. Indeed, GM’s Chinese partner SAIC has already bought out the majority stake in its Shanghai GM joint venture, and took over GM’s Indian operations. Other politically unpalatable but very possible cornerstone investors: Arab sovereign wealth funds, Russian oligarchs, or labor union pension funds. If any of these investors buy up large chunks of GM equity, the auto bailout will suddenly be seen as taxpayer support for overseas investors or a favor for the politically well-connected unions. And since both auto task force boss Ron Bloom and TARP boss Herb Allison

have been consulted on the question of how to balance access to the offering by retail investors against the potentially competing goal of maximizing returns for U.S. taxpayers.

the White House won’t be able to avoid any political fallout from (for example) headlines proclaiming a part-Chinese-owned GM.

On the other hand, getting a big investor to go large on a GM IPO could help reassure the market, which is understandably hesitant about GM’s return to public trading. But who’s got $2b to drop in a single big bet on a troubled, recently-bankrupt automaker? If GM’s can find two such investors with no major political downsides, they’d be crazy not to woo the hell out of them. But who could such investors be? Or will GM throw politics to the wind and end up in the arms of their Chinese partners? Scenario me…

#Bailout #China #Global #GM #HighFinance #Investor #Ipo

Edward Niedermeyer

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5 of 26 comments

Pgcooldad on Aug 18, 2010

Ok, just for laughs ... How about Cerberus?

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- Lorenzo on Aug 18, 2010
  
  What do you mean, "just for laughs"? Cerberus knows more about the car biz than any other investor. Specifically, they know how much they don't know.
  
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GarbageMotorsCo. on Aug 18, 2010

Let China invest in them, they'll own GM down the road anyways.

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- Rob Finfrock on Aug 18, 2010
  
  Indeed... and I can think of no more fitting end to this ridiculous farce. Having China take control of GM -- then eventually closing down the US operations completely (don't think for a minute they wouldn't do precisely that) -- would serve as the ultimate cautionary tale of why the feds should never interfere with natural economic processes. Of course, all that matters is that the UAW bosses get their payouts, and the Dems get elected in November. Everything else is unimportant.
  
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- MikeAR on Aug 18, 2010
  
  Rob, you are absolutely right.
  
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