#news Wall Street Payday for a New GM

Some Critics Now See Value of U.S. Bailout; Others Unmoved

By SHARON TERLEP And RANDALL SMITH

Seventeen months after its old shares were made worthless in bankruptcy court, General Motors Co. made a dramatic return to the stock market following a government-led turnaround that proved far more successful than many had expected.

In their first day of trading Thursday, GM shares opened at $35, two dollars above the price investors paid for them in the company's initial public offering Wednesday. In trading, they climbed to as high as $35.99 before closing at $34.19.

The first-day price gain of 3.6% over the IPO price was far below the 9.7% average for the previous 10 largest U.S. IPOs, according to Thomson Reuters, which tracks new issues. And the small gain came as the overall stock market rose broadly.

The skimpy price rise appeared to have reflected the U.S. Treasury's push to boost the IPO price of the shares this week from an initial range of $26 to $29 a share to $32 to $33 a share, and to increase the size of the sale from 365 million shares to 478 million, with an option to sell as much as 550 million.

Still, the IPO took in $18.1 billion, assuming the banks sell their "overallotment," or additional shares they may release if demand warrants. That is far more than GM had expected weeks ago, and makes it the second-largest IPO in U.S. history.

The sale will return up to $13.6 billion to the U.S. government, which put $49.5 billion into GM last year as part of its bailout of the auto maker.

Two years ago, GM was nearly out of money and then-Chief Executive Rick Wagoner went to Congress to plead for government aid. Today, a leaner GM is making billions of dollars in profit and has a market value of about $51 billion—close to the $58 billion value of consistently profitable Ford Motor Co.

"Today, one of the toughest tales of the recession took another big step toward becoming a success story," President Barack Obama said at a news conference. "What's more, American taxpayers are now positioned to recover more than my administration's investment in GM."

Sen. Bob Corker, a Tennessee Republican who was an outspoken critic of the government bailout of GM and Chrysler Group LLC, said recently he feels "gratified" by the progress GM has made. Without the government's help, "there is absolutely no way GM would be in the position they are in to expand and grow," he said in the recent interview. "Much of the taxpayer money is going to come back."

Others remain unpersuaded, despite the turn in GM's fortunes. "Even if the government can invest in a private enterprise and make money, it shouldn't do so," said Sen. Jon Kyl of Arizona, the second-ranking Republican in the Senate. "That's a perversion of capitalism."

GM still has many challenges. Its U.S. vehicle sales aren't rising as quickly as those of key competitors including Ford; it may need to put billions of dollars into its pension funds; and its development of new models was disrupted by its stay in bankruptcy court.

The company also is being run by a chief executive, Daniel Akerson, who has no experience managing a major industrial company, let alone a global car maker as complex as GM, though he is praised on Wall Street for his deal-making background.

In a conference call Thursday, Mr. Akerson, who once ran a telecom company and most recently worked at buyout firm Carlyle Group, said GM's financial health is now on par with Ford's, which has been lauded for forging a robust turnaround without taking government aid.

"We took different paths to get here," Mr. Akerson said, who signaled the start of Thursday's trading on the New York Stock Exchange by sounding a horn from a Chevrolet Camaro outside. "Now, we are both viable, strong competitors with a level playing field."

The foundation for GM's recovery was set in actions the government took last year to deal with the car maker's bloated operations, high debt and entrenched management.

In the weeks leading up to GM's bankruptcy filing June 1, members of the administration's auto task force moved into GM's Detroit headquarters and pushed the company's executives to accept deep cuts to its North American operations. In the end, GM agreed to sell or close four of its eight brands, close factories, shut hundreds of dealerships and eliminate thousands of jobs.

At the same time, the administration officials forced GM bondholders and the United Auto Workers into agreements that slashed GM's debt. As a result, the company emerged from bankruptcy in July 2009 with a clean balance sheet and soon began generating cash—two things investors like to see. Just before the IPO, GM used some of its cash to reduce its debt further and trim its pension liabilities.

GM's position that it would operate with little to no debt within a few years went a long way toward winning credibility on Wall Street. James B. Lee, the J.P. Morgan & Co. deal maker who handled the IPO for the bank, remembers being impressed early this year when Chris Liddell, GM's new finance chief, made that declaration in a meeting. "I'd never heard something like that in 25 years of working with GM," Mr. Lee said.

The most important step may have been the government's efforts to stock GM with a new management team, to shake up its corporate culture and refocus the company on making money.

As part of its bankruptcy reorganization, the Treasury recruited seasoned executives to take seats on a new GM board and be ready to run the company, if need be.

They included Edward E. Whitacre Jr., the former AT&T Inc. chief who joined GM as chairman and ended up running the company as CEO from December 2009 until September, and Mr. Akerson, who succeeded Mr. Whitacre as CEO and will take the chairman's job at year's end.

This summer, with the balance sheet in line and after two profitable quarters, GM, the Treasury and stock underwriters turned their attention to getting the maximum financial and political payoff from the IPO.

Word spread on Wall Street that the offering would happen in November and that it could total $15 billion or more. But in late August, key people involved in the IPO began a quiet campaign to tamp down expectations for the offering, which some feared could be hampered by the volatile stock market, slower-than-expected rebound in the U.S. auto market and overall pace of economic recovery.

Quietly, word went out that the offering could be less than $10 billion.

On Wednesday, those fears ended when the stock sale posted a near-record for U.S. IPOs. Still, the relatively small jump in GM's share price Thursday disappointed some investors.

Tony Boase, an analyst at FAF Advisors in Minneapolis, which received an allocation of GM shares, called the price gain "poor." In pricing the sale, he said, bankers appeared to have favored the U.S. and its desire to maximize its take over investors. "Next time they do a deal [at GM], investors are going to be less interested," he said.

Josef Schuster, chief executive of IPOX Schuster LLC, who bought 16,000 shares in the IPO for his Direxion Long/Short Global IPO Fund, said he expects GM "will trade in this range for some time." For the Direxion fund, GM will be a key holding for the next eight to 10 months, "and we'll review it after that," Mr. Schuster says.

—Joseph B. White, Josh Mitchell and Eleanor Laise contributed to this article.

Write to Sharon Terlep at sharon.terlep@wsj.com and Randall Smith at randall.smith@wsj.com

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