A good business man never lets an opportunity go to waste, at least that’s what GM’s CEO Ed Whitacre believes. As General Motors prepares to emerge from bankruptcy with what will likely be the second largest IPO in history, investment banks drooled over the potential for mega fees from placing shares. However, GM’s Whitacre is really making the banks earn his business, as the banks that are leading the offering were forced to reduce fees by a quarter in order to win the business. This is too be expected, as many of the banks competing for the business would surely drop their fees to court such a large IPO. However, according to Bloomberg, there is something else GM expects from the bankers that is a little less standard in such a situation,
Banks were asked to discuss “ideas as to how we can use the IPO to reposition GM and its vehicles within the investment community including your firm’s willingness to reinvest any portion of any underwriting fees into the purchase of GM vehicles for your employees and/or company use.” – Bloomberg.com 7/14/2010
Essentially, GM executives asked if the banks would be willing to subsidize purchases of their vehicles in return for the business which would further reduce the bank’s take on the transaction. Of course, the request was made before the fees were agreed upon at the reduced percentage, so it is unknown whether the banks actually agreed to this sort of swap. With neither lead underwriters JP Morgan (JPM) nor Morgan Stanley (MS) commenting on the situation we may never know what the final agreement entails.
At first blush, I did not like the sound of this as it made me wonder if GM is desperate and overplaying there hand. However, upon further consideration, why shouldn’t they at least ask? Whitacre and company knew that banks would be willing to bend over backwards to nab this gig, so why not tell them one way they can get a leg up on their competitors is to buy some cars. General Motors has the leverage in this situation and why not use it to sell cars? Hopefully, it will get them closer to paying back the taxpayers and get more Americans working in their factories. It may be a small gesture but it demonstrates a creativity that has been severely lacking at GM for far too long.