GM prepares record stock offering GM hopes to net $2.29 billion with 57.5 million new shares.


NEW YORK -- For General Motors, yesterday wound up the sales pitch of a lifetime. Its short video presentation, which it displayed around the country, was a smooth one. Fresh-faced adolescents and bare-bottomed babies grinned from the seats of GM cars. Happy customers breezed by in their Cadillacs and Chevrolets.

But this time the world's largest automaker was not selling cars and trucks, it was selling itself, in the form of the largest stock offering by a U.S. company.

Later this week, GM plans to sell up to 57.5 million new shares of its common stock to raise $2.29 billion. The money will dress up GM's battered balance sheet and pay for everything from new-car development to new tools and equipment.

The only other U.S. institution to attempt such a sizable stock sale was Conrail, the freight railroad, which raised $1.46 billion by selling stock in 1987.

"There hasn't been anything this important in a long time," said Robert H. Stovall, chairman of Stovall/Twenty-First Advisers, a money management firm, and a longtime GM watcher. "This could set all kinds of records in terms of numbers of individual investors buying. It's a major event in the distribution of stock."

It is also the monster that dominates Wall Street. Almost every brokerage house in the country is trying to sell part of the offering, partly because the market is ripe for a stock sale of an icon of corporate America. But more significant are the fees.

Compared with the mega-fees booked from mergers in the 1980s, the GM underwriting fees may look modest. But if the sale is a complete success -- nearly everyone predicts it will be -- Wall Street's estimated cut will be anywhere from $69 million to $115 million.

Offerings like this have fatter profit margins for brokers, providing a big incentive to sell the new shares. And best of all for investors, GM effectively pays the sales commission -- not the customer.

Since it announced its stock offering late last month, three teams of executives have hopscotched around the world to 17 cities, meeting with investment managers to pitch the stock and GM's plan to nurse itself back to health after a record $4.5 billion loss last year.

In fact, two of GM's private airplanes have been in constant use to help transport the well-rehearsed management team of 10, and their Morgan Stanley & Co. investment bankers, from London to Hong Kong to Minneapolis to New York. Translators have rattled off the minutiae of earnings per share and car-platform renovations in English, Japanese and French.

More than 500 institutional salespeople at Morgan Stanley, which is leading the stock-sale effort, have called up investors around the world to pull a crowd to the road-show sessions, which ended yesterday with stops in Baltimore and Philadelphia.

In the end, though, the well-laid plans could be undone by the market's unpredictable cruelty.

"It would screw them up if the market tanked from here," said Michael Murphy, editor of the Overpriced Stock Service, an investment newsletter. "They could still get the deal done, but odds are they wouldn't want to."

So far, the stock market has been awaiting GM with open arms. The more cynical of analysts say they wish the automaker could run its businesses as brilliantly as it has timed its stock offering, which stands to capitalize on the current market euphoria.

Indeed, the Dow Jones industrial average, of which GM is a component, has set a string of records in 1992. GM shares, which closed yesterday at $39.375 on the New York Stock Exchange, up 12.5 cents each, have risen 36 percent this year.

The rising market gave GM a comparatively less expensive means of raising money, rather than borrowing it from banks or selling bonds.

GM may be savvy to exploit a market of willing investors, but it did not expect them to clamor for its shares without instituting radical changes.

Analysts have little doubt that much of the corporate dressing-up of recent months -- plans to eliminate 74,000 jobs, close a score of plants and realign top management -- was in preparation for the offering. "The status quo was just not enough," said Tom Galvin, an auto analyst at C.J. Lawrence.

The preparations actually began three months ago when a team of GM and Morgan Stanley executives visited analysts at the powerful agencies that rate corporate debt.

The ratings agencies' displeasure with GM has been no secret: Only a month before the stock offering was announced, Standard & Poor's Corp. downgraded GM's senior debt to A-, from A. Companies perceived as high risks by ratings agencies pay higher interest rates for short-term borrowings.

A number of securities analysts believe the ratings agencies played the largest role of all in determining just how much stock GM needed to sell to bolster its capital base and its spending plans.

Neither the analysts, GM nor Morgan Stanley would publicly discuss that or other matters surrounding the offering because Securities and Exchange Commission rules restrict companies from promoting their stock before the price of the shares is set, which could happen as early as tonight.

Although GM has recently come to symbolize much that is amiss in Corporate America, analysts say it has displayed clear evidence that it is finally willing to make painful changes.

Further assisting the brokers is the simplicity of the deal itself. Incontrast to the complicated financial science of the 1980s, the GM offering is as basic as it gets: common stock. Said one analyst whose firm is selling GM shares, "The GM deal is a return to the way business used to be done -- conservatively."

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