GM's return to the public markets was a success.
That at least is the opinion of some market watchers who track initial public offerings like the one pulled off Thursday by the recently bankrupt General Motors Co. Sure, its stock only rose a little more than $1 from its offering price. But that apparently was plenty enough.
There are three big numbers on the first trading day of a new stock: The IPO price paid by select buyers before the stock begins trading, the price of the first trade and the closing price. The goal: What David Menlow of research firm IPO Financial Network calls a trifecta __ higher numbers at each step.
General Motors hit two out of three. After being priced at $33 a share in the IPO, the stock opened at $35. It ended the day at $34.19, a gain of 3.6 percent, after trading as high as $35.99 in the first few minutes of trading. Almost 457 million GM shares traded, about one tenth of all trading of New York Stock Exchange shares.
"It's a delicate balance," said Menlow. "If you price the stock to exactly the demand, it's a recipe for failure. The people who got the IPO will be disappointed and look to sell."
And the difference between disappointment and success comes down to pennies.
One widely perceived failure was CIT Group's offering in July 2002. It began trading at $22.50, a mere 50 cents below the IPO price. Two years later, insurer Genworth Financial belly flopped on its first day. Its sin: It opened at 25 cents below its offering.
Under the circumstance, GM put in a solid performance. The fear was that the sheer size of GM's offering would keep investors on the sidelines. The U.S. government and other owners sold 478 million shares late Wednesday, the second biggest IPO dump by a U.S. company in history, according to Menlow. The top prize is held by Agere Systems Inc., which went public with 600 million shares in March 2001.
In the end, traders appeared to handle the onslaught without much trouble.
"We don't want a moonshot," said DME Securities trader Alan Valdez as the stock was drifting lower in midafternoon trading. "Then you worry people might start selling fast. You want to build a base. You want investors for the long term."
For all the attention on the first day, the real test may come in a month. That's when regulators allow stock analysts at banks that helped take GM public to publish reports recommending or panning the stock. Analysts are a notoriously overoptimistic and their reports are viewed with suspicion among professional investors. Yet a report urging people to buy or sell can still move shares sharply.
The stock will need to keep rising for taxpayers to have any hope of getting their $50 billion back from the GM bailout. The government got $11.8 billion selling about 40 percent of its stake in the automaker. To break even, it needs to unload the rest of its GM shares at an average $53 apiece.
That's more than 50 percent higher than the stock closed Thursday.