November 18, 2010
The GM IPO: What Will We See?
Posted by Christine Hurt

General Motors shares will trade for the first time today, after its original allotment was sold for $33/share.  Many of these shares were owned by you, or let's just say the U.S. Treasury, which reduced its stake in GM from 61% to 26%.  The Treasury will probably sell some additional shares in the overallotment today.  The commentators are exuberant about this large IPO, after years of very few IPOs, and about the $33/share price, which was higher than expected.

One interesting aspect of the GM IPO is the underpricing.  Was the $33/share price designed to capture the full market value of the shares, or were the shares traditionally underpriced, as the average bookbuilding IPO is?  The twist here is that the original IPO consideration is going not just to the issuer, but to the majority shareholder, the U.S. Treasury.  One possible story is that the Treasury has the incentive to get full value in the IPO and not leave any on the underwriter's table.  But, the Treasury will also retain shares, so they may want the (pseudo-artificial) positive press that a first-day pop gets to sell in the over allotment or a follow-on.  Let's watch.

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