GM IPO should borrow from European privatizations
The U.S. administration should take a quick refresher course in recent European financial history. That could help it pitch General Motors’ upcoming initial public offering right. That’s important: If the IPO is priced too high and flops, it’ll be much harder for the government to offload the rest of its shares without taking a hit. But if GM’s stock market debut prices too low and shares surge, the White House would risk accusations of favoring Wall Street at taxpayers’ expense.
Europe’s wave of privatizations in the 1980s and 1990s offers some tips. Large portions of the deals were sold to the general public. Allocating a sizable slug of GM’s IPO to American citizens rather than institutional investors would be one way to allow them to share any upside in the stock of a company saved from extinction by their tax dollars.
GM could simply run a blind IPO auction, like Google’s, and only allow individuals to buy stock — an idea mooted by CNBC. That’s certainly possible, though institutional investors do manage individuals’ pensions, can be more stable owners and, at least in theory, exert greater influence on company management.
Striking a balance is where the European experience could come in. As much as half of some privatization IPOs were sold to retail investors — far more than the 20 percent usually allocated in U.S. deals. On top of that, governments used a variety of incentives to entice individuals to buy shares: they could buy at a discount to the IPO price and pay for their shares in installments, as happened with the first big deal, British Telecom, in 1984. To discourage flipping, some privatizations offered individuals extra shares for free if they held onto their stake for a year. To combat fears of a stock market drop, some governments guaranteed to cover the first 10 percent of losses, as Italy did with ENI’s privatization in 1995.
Involving individual investors on such a scale might defuse any desire to try to price the deal too high. And offering them this kind of preferential treatment would make them the biggest beneficiaries if GM’s shares skyrocketed. It would mean more work for the deal’s underwriters, who are already working for a record low fee of 0.75 percent. But GM’s IPO is arguably a de facto privatization, and U.S. taxpayers deserve to share any benefit.