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GM's initial stock offering was a nail-biter for the two U.S. Treasury
officials who were the architects of the deal
Want to underwrite one of the largest initial public offerings in history? Chop your usual fee by three-fourths and commit to limiting Wall Street's windfall.
That was the deal David Miller and Tim Massad, the unheralded government architects behind the General Motors (GM) stock offering, gave investment banks interested in handling the deal. When the two Treasury Dept. officials made their expectations clear, "we could kind of hear their jaws drop over the phone," says Massad.
Massad, acting assistant secretary for financial stability, and Miller, chief investment officer for the Troubled Asset Relief Program, were President Barack Obama's dealmakers on the Nov. 17 sale of GM stock, along with two Obama aides—manufacturing czar Ron Bloom and economic adviser Brian Deese.
The IPO, led by JPMorgan Chase (JPM) and Morgan Stanley (MS), was a nail-biter for Massad and Miller, who also manage the government's bank and insurance company investments. As Miller says, "you want the deal to go well" without looking overly optimistic in pricing the shares. "At the same time, we don't want it to go up way too much" because that would mean taxpayers left money on the table on the first day of trading.
GM's shares, initially priced at $33, rose 3.6 percent on Nov. 18, the first day of trading—exactly the "sweet spot" Miller and Massad wanted. Of the nearly $20 billion raised, almost $12 billion went to the U.S. Says Jay Ritter, a finance professor at the University of Florida in Gainesville who studies IPOs: Treasury officials "passed with flying colors."
Taxpayers, however, haven't broken even on GM. The government needed to sell its entire stake for about $44 a share for that to happen. The U.S. would need to sell its remaining 37 percent ownership of GM at $53 a share for taxpayers to be made whole.
Miller and Massad say they aren't waiting for the stock to reach that level. "We're not a private equity fund," Massad says. "We believe that promoting financial stability means we should exit as soon as we can." Of the $50 billion the government gave GM in 2008 and early 2009 when the auto industry was near collapse, Treasury says it will recover $9.5 billion through interest, loan repayments, and preferred stock dividends. Ultimately, the government may lose $5 billion to $7 billion of the $85 billion auto industry rescue effort, Steven Rattner, former head of the President's auto task force, said in a Nov. 17 Bloomberg Radio interview.
Investment banking fees were one of the trickiest parts of the deal, says Herb Allison, the former Fannie Mae (FNM) and Merrill Lynch executive who led Treasury's financial stability office from June 2009 through September 2010. If the government were too soft on the investment firms, Wall Street would profit at taxpayer expense. If too strict, the best firms might walk away. "That was a difficult decision," Allison says of Treasury's demand for a 0.75 percent fee. "I think it proved to be the right one."
Massad, 54, is a former corporate lawyer at Cravath, Swaine & Moore who has worked on hundreds of IPOs, although this is his first one as the client. He earned undergraduate and law degrees from Harvard. Miller, 34, worked on deals in Goldman Sachs Group's (GS) special situations unit, laying the groundwork for his job managing TARP's complex mix of preferred shares, common stock, warrants, guarantees, and dividend agreements. Before going to Harvard Business School he studied economics at Dartmouth, where he also minored in film studies.
The pair's labors aren't over yet. They still need to manage the rest of the government's auto stake, along with its holdings in American International Group (AIG), Citigroup (C), and hundreds of smaller institutions. "We have responsibility for almost $200 billion of assets and only one of those, which is very important, is General Motors," Miller says. "While it would have been nice to spend the day watching and feeling good about it, there was other business to attend to."
The bottom line: Two Treasury officials, both former Wall Streeters, were the government's invisible hand behind GM's successful stock offering.