DETROIT (AP) - Investor demand for General Motors' shares is so high that the automaker will raise the price range of its common stock to $32 to $33 when its initial public stock offering begins on Thursday, a person briefed on the sale said Monday night.
GM is also planning to sell 9 million more preferred shares than originally expected, the person said.
The final price will be set Wednesday after the stock markets close, but GM intends to announce the new range and the additional preferred shares on Tuesday morning in a filing with the U.S. Securities and Exchange Commission, said the person, who didn't want to be identified because the moves have not been officially announced.
Earlier this month GM said its owners, including the U.S. government, will sell 365 million common shares for $26 to $29 each. The company won't sell common shares, but had planned to sell 60 million preferred shares for $50 each.
But since then, investor demand has been so high that GM and bankers handling the deal have decided to raise the common stock price range and issue more preferred shares, the person said. The preferred stock price will stay at $50, but GM's total cost for those shares will remain about the same because it's reducing the expected dividend rate from a range of 5.5 to 6 percent to between 4.75 and 5.25 percent, the person said.
The preferred shares will be converted to common stock in 2013. Bankers have the option to sell roughly 55 million more common shares, although they have not yet decided to do that, the person said.
Orders for the common shares are now seven times higher than the number of shares being offered, said the person, who expects the banks to stop taking orders for the IPO on Tuesday afternoon, two days before the actual sale.
GM, just 16 months out of bankruptcy protection, has impressed analysts and investors with its third-straight quarterly profit and a prediction of much bigger earnings if U.S. auto sales continue to improve.
Any share price increase would certainly be a boon for GM's largest stockholder, the U.S. government, which is trying to get back the $50 billion it gave GM last year to get through restructuring.
"There is legitimate demand for this," said Scott Sweet, senior managing partner of the research firm IPO Boutique.
GM spokesman Selim Bingol and Treasury Department spokesman Mark Paustenbach would not comment on any possible price increases.
At the midpoint of the current common stock price range, $27.50, the sale would bring in just over $10 billion for the U.S. government and other GM owners, the Canadian and Ontario governments and a union health care trust fund. The U.S. government would get over $7 billion.
But if the share price rises to $33, the total figure jumps to $12 billion, with the U.S. government getting roughly $8.7 billion. The preferred shares could bring in $3.5 billion at $50 each.
By selling some of its shares in an IPO, the U.S. government would reduce its stake from 61 percent to 43 percent. That could drop to 35 percent if bankers take the option to sell more common shares.
That could ease animosity toward GM because of the government bailout, which the company said has irked some potential buyers and hurt its sales.
Ontario Finance Minister Dwight Duncan has said the federal and Ontario governments will sell about 30 million of their shares in GM.
GM, though, can't raise the share price too high because it could exceed limits placed on investors' orders, Sweet said.
Demand for the automaker's shares is rising as its financial outlook improves. Last week, GM announced a third-quarter net profit of $2 billion, bringing its earnings to a healthy $4.2 billion for the year. Also, in presentations to investors, GM said its debt and labor costs have been cut so much that it can break even at the low point in an auto sales slump. When sales fully recover, the company could make $17 billion to $19 billion per year pretax.
The possibility of a price increase comes during a week that could be the biggest for IPOs since 2007, according to investment adviser Renaissance Capital LLC. The IPO market has improved steadily since August 2009. The sector had been almost frozen for nearly a year after massive losses on mortgage bonds upended global credit markets.
Sweet wrote in a note to investors that two other IPOs slated for this week also have more orders than shares, management consultant Booz Allen Hamilton Inc., and the broker-dealer LPL Investment Holdings Inc.
Some of GM's investor demand is coming from overseas, including automaker SAIC, GM's government-owned partner in China, which may buy $500 million worth of shares. GM also has courted investment funds in the Middle East and Europe.
Foreign investment, which is common in the U.S. auto industry, could come with a political backlash because GM stock in the IPO is largely unavailable to individual buyers.
Brokerages such as Charles Schwab and Scottrade, which handle trades for smaller investors, aren't taking part in the GM offering. Fidelity has an agreement with GM underwriter Deutsche Bank to sell shares to retail investors. But to place an order, investors must have at least $500,000 in assets with Fidelity, make 36 trades a year or be a premium investor, which normally is for high net-worth clients.