There is a lot of buzz surrounding the initial public offering of General Motors Co. The latest news tells us that the shares will likely be priced between $32 (U.S.) and $33 each - up from an estimate of $26 just two weeks ago.
That follows earlier reports suggesting that retail investors would be shut of out the IPO process, forced to pick up the shares on the open market when they start trading in Toronto and New York, probably on Thursday.
The gist: Investors want a piece of GM, and they want it badly. This is something of a mystery, though, because there isn't a lot of upbeat commentary about the company, even after it swung to a $2-billion profit in the third quarter. Rating agencies still rate the car manufacturer's debt well below investment grade, or "junk."
John Shipman, in a piece for Dow Jones Market Talk, goes so far as to compare the current excitement over the GM IPO with the excitement surrounding Blackstone Group LP's IPO in 2007. Blackstone hit the stock market at $31 a share amid a raging appetite for private equity firms. Enthusiasm quickly fizzled, though, and the shares are now down nearly 60 per cent from their debut.
Joshua Brown, who writes The Reformed Broker blog, pointed out that there are a number of differences between the Blacksone IPO and GM's - not least of which is that the U.S. auto industry does not have the same glow that private equity had in 2007.
Still, he counts himself among the skeptics: "Where I agree with Shipman is that the hype is getting louder and the public offering itself could certainly end up as a kind of climax for the rest of the market," he said on his blog.
He wrote that on Monday, a day before the S&P 500 and the S&P/TSX composite index crumpled on concerns about China's economic growth and the European financial crisis. If volatility persists this week, GM's much-anticipated IPO might coincide with an ugly backdrop on the stock market.
Meanwhile, Eddy Elfenbein at Crossing Wall Street says that he is leery of the IPO and points to this ugly line (via Jeff Reeves at InvestorPlace) in the company's offering prospectus:
"We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan."