What is an IPO?
An initial public offering, or IPO, is the first sale of a corporation’s common shares to investors on a public stock exchange. The main purpose of an IPO is to raise capital for the corporation. While IPOs are effective at raising capital, being listed on a stock exchange comes with heavy regulatory compliance and reporting requirements.
The term IPO only refers to the first public issuance of a company’s shares. It assumes a company is big enough, successful enough, and has the required track record to raise capital in the public equity market. If a company later sells newly issued shares again to the market, it is called a seasoned equity offering. When a shareholder sells shares, it is called a secondary offering and the shareholder, not the company that originally issued the shares, retains the proceeds of the offering. These terms are often confused and only a company which issues shares can make a primary offering or IPO. Secondary offerings occur on the secondary market, where shareholders (not the issuing company) buy and sell shares from and to each other.
General Motors executives are playing up three bright spots in the company’s future as they try to persuade investors to buy GM stock: a better lineup of cars and trucks, potential for global growth and a new cost structure that enables the company to make money even when the economy dips.
GM emerged from a government-organized bankrupcty just 16 months ago, the re-organization has erased debt and lowered labor costs. The re-organization has left the old stockholders with nothing.
Today GM is owned by both the Canadian and US govenment, the total IPO being presently issued by GM is $10 billion, demand is so hight that brokers have taken orders for as much as $60 billion US worth of shares.
1. Do your own research on IPO’s, why is there such a demand?
2. Due to the hight demand, do you think GM will increase the IPO to $60 billion?
3. Why do you think the GM shares are in such high demand?
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