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Kicking the tires on GM's IPO

Chevrolet Silverados roll through a plant in Flint, Mich., in June. General Motors is expected to roll out its new IPO on Nov. 18. 

Associated Press

Chevrolet Silverados roll through a plant in Flint, Mich., in June. General Motors is expected to roll out its new IPO on Nov. 18. 

DETROIT — IPO. Those three letters conjure up the dot-com heyday of the 1990s, the era of fast money and instant millionaires. • But most of us didn't get rich quick back then on Netscape or other Internet-related IPOs. And what do we know about initial public offerings of stock? • With General Motors expected to roll out its new IPO on Nov. 18, we could all use a primer.

What is this GM "road show" we keep hearing about?

The road show is the big show, if you will, of initial public offerings. The company issuing stock has a marketing campaign that it takes on the road to several major cities, often New York and Chicago, but GM's road show also will go to Europe. The road show involves meetings with mutual fund managers, hedge fund managers, endowments or pension funds. It also helps the issuers of the IPO judge its potential popularity and helps underwriters better determine how to price it.

Who sets the price of that GM IPO?

GM does not slap a sticker on the window. Instead, the underwriters — or investment banks — involved work up pricing and marketing for the stock offering.

Why should I care about underwriters?

Often for a hard-to-get IPO, your best chance of getting shares is if you are a customer of an institution that is an underwriter for the deal. If, for example, you have an account at a discount brokerage, such as Fidelity or Schwab, you might have a harder time getting some shares in an IPO because those firms are not underwriters in IPO deals. The GM deal is huge and includes Morgan Stanley, JPMorgan, Barclays Capital, Bank of America, Merrill Lynch, Credit Suisse and Citi.

What's a prospectus?

It's the owner's manual for an IPO, including the nuts and bolts of the company's financial history, management, risks and details. If you want details on the GM IPO, go to the GM website at www.gm.com/corporate/investor_information/sec/.

GM employees, retirees and dealers also had a chance to sign up in October to buy shares in the IPO. Signing up did not, however, require them to buy.

Flippers? IPO pop?

IPO speculators — known as flippers — go after quick money and want to sell after a first-day "pop" in the share price.

But not all IPOs pop. Some Michigan investors might remember that Domino's didn't deliver after its IPO back in 2004. The pizza chain lost 50 cents a share in its first day of trading on the New York Stock Exchange.

How much pop has the new GM got?

"I don't think there's going to be a 'pop' on General Motors," said David Menlow, president of IPOfinancial.com in Millburn, N.J., because this is such a massive stock offering.

Others note that while the stock is new, GM is not a new story. The new GM may have posted a few profitable quarters, but the auto industry is still the auto industry, and — some may say — GM is still GM.

Kicking the tires on GM's IPO 11/05/10 [Last modified: Friday, November 5, 2010 9:53pm]
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