Unforseen consequences have led to problems with the restructured General Motors’ planned IPO.
The impact of the US government’s bailout of GM includes a conflict with one of the four lead underwriters on the automaker’s planned initial public offering because the government – the main seller in GM’s IPO – is also a part owner of Citigroup, a leading underwriter, Reuters reported at the weekend. The US Treasury owns 61% of GM and, at 30 September, a 12.4% stake in Citigroup’s common stock.
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Though the conflict is unlikely to have a major impact on the IPO it is significant enough to have been flagged in a regulatory filing, the report said, noting that its disclosure highlights just how complicated the government’s exit from GM and the financial sector will be.
“Maybe a government bailout is a good idea but it comes with attendant complexities and problems that are somewhat unprecedented and require extra special attention to detail,” David Martin, partner and co-head of Covington & Burling LLP’s securities practice, told the news agency.
Gregg Berman, partner and vice chair of Fulbright & Jaworski LLP’s securities practice said conflicts often arise from one company directly owning another instead of both having a common owner.
“I’m not sure when people are doing a registration statement for a third party like General Motors that they are thinking, ‘My goodness, Citi is also a ward of the state and consequently we need now to worry about this conflict of interest,'” Berman said.
The US government paid GM US$50bn for a 61% stake to keep the automaker from liquidation through bankruptcy while massive losses on bad loans forced Citigroup to take a record $45bn from the taxpayer.
The Treasury stakes in both GM and Citi mean that the conflict must be disclosed and Citi must obtain prior written permission before purchasing GM IPO shares through certain accounts, Reuters said.
