DETROIT — General Motors has taken a step of faith.
The automaker has declared its intentions to go public in the midst of an economy that's ho-hum at best. It's asking would-be investors, some of whom were burned in GM's bankruptcy, to look beyond that.
It's also asking them to bet that a new CEO with telecommunications credentials, Dan Akerson, can run the world's second-largest automaker. And while GM is likely to have one of the largest initial public offerings in U.S. history, it will likely issue only 20 percent of its equity.
That leaves lots of stock to sell later — and lots of questions about what price GM's shares would be able to fetch come November.
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"The valuation of the stock is not going to be what it would have been had the economic environment been better," said consultant Maryann Keller, a former Wall Street analyst. "If this were a company with no previous history and you can dazzle someone with technology, you can sell someone on the possibility of enormous success. But this is a company that has a 100-year history."
Just last year, that history almost came to an end. Still, members of the investment community say enough investors are excited to give the IPO a decent chance of success.
Dennis Buchholtz of Warren, Mich., had $98,000 of his retirement funds in General Motors bonds.
Then GM went bankrupt, and the bonds became practically worthless.
Bondholders collectively took a 10 percent stake in GM in exchange for erasing the company's debt in its bankruptcy last year.
Once GM goes public, likely late this year, bondholders will be able to sell GM stock to make up a tiny portion of the cash.
"Our $98,000 may end up being worth $3 or $4," said Buchholtz. He points to the 17.5 percent stake the United Auto Workers' health care trust got in GM and says the Obama administration brokered a better deal for the union.
But if Buchholtz had more money to invest, he says he might give GM another chance. And members of the financial community agree, saying GM's past likely won't hurt investors' appetite for the reborn company, which has posted two straight quarterly profits after 10 quarters of losses.
"I think most people will start from scratch and look at it on the merits," said Mirko Mikelic, senior portfolio manager with Fifth Third Asset Management in Grand Rapids.
Still, Mikelic said he was unsettled by GM's appointment last week of board member Dan Akerson as CEO in place of Ed Whitacre, effective Sept. 1. "Is it going to change again in another few months?" Mikelic asked.
Keller, who now runs the consultancy firm Maryann Keller and Associates, had been vocal in the lack of confidence she had in pre-bankruptcy GM's directors. The abrupt CEO change, which the board decided on days before GM registered for its initial public offering, makes her doubt the new board again, she said. "Investors want to know who's going to run the company, and you figure it out the week before you issue the registration? That's bizarre," Keller said.
GM will find buyers for its stock — that much is certain.
But investors' doubts in the company might affect their willingness to pay a high price.
So far, uncertainty over the CEO change isn't hurting GM's price prospects, a person familiar with GM's offering said.
"I'm not hearing, 'You've got to put in the Akerson discount,' " the person said.
Bigger problems for investors are the size of GM's offering and the company's need to release more stock over the coming years so the U.S. Treasury and other shareholders can cash out, the person said.
"If the amount ends up being $15 billion, that's a lot of stock to place" in a slow economy, the person said. "You're going to buy this thing, and there's going to be 80 percent more that's coming. At the same time, I talk to people who are just foaming at the mouth to get their hands on the preferred (stock)."
Perhaps most concerning, the economic recovery that looked promising now appears to be slowing. Keller forecasts auto sales that stay flat for the rest of the year, below analysts' forecasts early in 2010.
"There is, I think, the potential that this could be embarrassing in terms of valuation of stock," she said. "It's not like someone is going to put a premium price on GM, which builds the most discretionary of products: a car."