Like Primerica, the largest term life insurer in the US, GM needs to emphasize its bloodlines, or management team. The former had two long-term co-CEOs, the latter has Ed Whitacre, an auto-industry outsider in the mold of Ford’s Mulally, who successfully turned around that once-struggling company.
GM also must avoid the “insider ownership overhang” that plagues Mitel. A fear that these insiders could sell at any time, sending the stock much lower, was one of the reasons Mitel’s offering didn’t sell. In order to avoid the same fate, GM needs to make sure its current owners’ stakes – held by the US government and the United Autoworkers Union – shrink after the deal.
GM needs to explain clearly how it will pay down its debt, something Mitel failed to do. Even after using the proceedings from its offering to erase $100 million in debt, Mitel’s leverage still clocked in at about three times 2010 earnings before interest, taxes, depreciation, and amortization. IPO investors don’t like debt-laden companies.
Most importantly, though, GM’s offering price should be low, perhaps a significant discount to where Ford is trading right now, so that it makes investors money. This is what Primerica did, setting its price at a mere one times book value while the industry’s average multiple was 1.2. Cramer said this was the biggest driver behind the IPO’s success, and he’s right: PRI is up 47% since coming public in no small part to this valuation.
The last thing General Motors should do is emphasize its growing Chinese sales, something neither Primerica nor Mitel could boast. This point should be a key part of any pitch GM makes to investors.
“That’s the sizzle,” Cramer said of the company’s China exposure. “The low offering price … is the steak.”
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