GM files for IPO but should you buy? (1)

General Motors Co. (GM), the No.1 US automaker which is 61 percent owned by the government, generated excitement in the market when it filed with regulators, on Wednesday afternoon, for an initial public offering (IPO). But the billion dollar question is - should you buy GM?

 The IPO

GM said, Wednesday, in a 700-page filing, it will sell preferred stock and will convert them into common stock by 2013. The automaker said it will not issue new common stock. Preferred stock is an instrument similar to a bond. The preferred shares carry a fixed dividend but don't give the owner voting rights as common shareholders. Preferred shareholders also receive dividends ahead of common stock holders. Preferred shareholders also get priority over common shareholders in the event of a liquidation - a feature that's likely to be attractive for major institutions and hedge funds.

GM said it is looking to raise up to $100 million to pay back a portion of its government bailout money to taxpayers. However, the company is expected to revise its target upwardly to as much as $16 billion, if not more, since the US government is also expected to put at least 11 percent of its stake in GM on the block to reduce its shareholding to less than 50 percent. The US government threw a $50 billion lifeline last year to GM and though, earlier this year in April, GM repaid $6.7 billion to the US Treasury, the remaining loan package still gives the government 60.8 percent stake in the automaker. Other GM owners are the UAW's retiree health care trust (17.5 percent), the governments of Canada and Ontario (11.7 percent) and bondholders of the old General Motors (10 percent).