GM prices IPO stock below Treasury's break-even

General Motors Co. announced that is has begun its initial public offering, paving the way for the Treasury Department to start reducing its 60.8 percent ownership stake in the company.

GM will sell 365 million shares of common stock at $26 to $29 per share in an offering that would reduce Treasury's ownership in the company to somewhere between 40.6 percent and 43.3 percent, according to GM's prospectus.

On Nov. 1, the company did a three-for-one stock split, which made each share less expensive.

Prior to that move, the Special Inspector General for TARP had estimated that GM's stock would need to sell for $133.78 a share for Treasury to break even on its investment.

That comes to $45.59 a share after the split -- about two-thirds higher than the mid-point of the offering.

Treasury could still rebound from the initial hit if it winds up selling its remaining shares for a higher price.

In addition to selling common stock, GM will issue 60 million shares of preferred stock with a liquidiation value of $50 per share, which would be converted to common stock three years after the purchase date. The company expects to reap $2.9 billion to $3.3 billion from the preferred stock offering.

The proceeds of that that deal would be used to purchase $2.1 billion of shares of preferred stock held by Treasury, as outlined in an arrangement announced last week.

The funds would also be used to make a contribution to its employee pension plans.

Underwriters have the option to purchase up to 54.7 million extra shares of GM's common stock, as well as 9 million shares of the preferred stock, to cover over-allotments. The company has no plans to pay dividends on the common stock being offered.

Based on prospectus that GM filed with the Securities and Exchange Commission, the company appears eager to reduce Treasury's ownership stake in the company, as it outlined many negative aspects of Treasury's involvement.

GM disclosed that Treasury "may still elect to exert control that could be contrary to the interests of stockholders," such as having a greater interest in promoting economic growth and jobs that shareholders.

The company cited an ongoing covenant with Treasury that requires it to use its best efforts to ensure manufacturing volume hits certain benchmarks.

The company also wrote in the prospectus that it believes its declining market share is due in part to "negative public perception" associated with its status as a TARP recipient.

In addition, it disclosed that, because of executive compensation limits associated with government aid, "the form and timing of the compensation for our most highly paid executives is not competitive with that offered by other major corporations."

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