The United Auto Workers health care trust and the governments of Canada and Ontario may not participate in General Motors Co's upcoming IPO in order to avoid taking a cut on the price of their shares, three people with knowledge of the matter said on Friday.

If GM's second and third largest shareholders opt to hold their shares beyond the IPO, that would leave the Treasury as the only stakeholder selling shares and could mean that the total value of the deal could be at the low end of market expectations.

The U.S. Treasury is still aiming to sell at least 20 percent of its stake in order to become a minority shareholder in the top U.S. automaker, five people familiar with the matter said.

The UAW's trust fund for retiree health care -- known as the VEBA -- and Canada together hold just under 30 percent of GM common stock as a result of the automaker's restructuring in a U.S. government directed bankruptcy in 2009.

Both VEBA managers and Canadian officials have raised the possibility of waiting until follow-on stock offerings in order to avoid offering the hefty discounts typically required for initial offerings, the sources said.

All of the people with knowledge of the discussions asked not to be named because preparations for the deal remain private and tightly controlled by U.S. securities laws.

IPOs are typically discounted 10 percent to 15 percent from theoretical fair value to reward investors for taking a risk on a new issue and pave the way for future stock floats.

In GM's IPO, the discount could be as much as 20 percent, sources have said. By comparison, follow-on offerings are typically priced just 3 percent to 7 percent below market.

Initial plans for the landmark IPO envisaged the two other major shareholders selling the same proportion of shares as the U.S. Treasury, which holds 61 percent of GM after its $50 billion taxpayer-funded bailout, sources had previously said.

All of the sources cautioned that no dollar amount has been set for the IPO, adding that the number of shares to be sold and the pricing will not be determined until after GM launches a roadshow for potential investors in early November.

The potential withdrawal by the UAW and Canada as sellers adds weight to the possibility that the offering could come in at the low end of the expected range. The GM IPO has long been seen as raising between $10 billion and $20 billion, making it one of the largest U.S. stock offerings ever.

Meanwhile, UAW President Bob King said on Friday that the union could use the GM IPO to pressure JPMorgan Chase in a protest against JPMorgan's refusal to declare a moratorium on foreclosures in Michigan and as part of a labor dispute at RJ Reynolds. JPMorgan is one of the lead underwriters on the GM IPO.

GM and the U.S. Treasury have repeatedly declined to comment on the IPO.

A spokesman for the UAW's VEBA was not available for comment. The VEBA holds 17.5 percent of GM common stock. The governments of Canada and Ontario have 11.7 percent.

We intend to maximize return for Canadian taxpayers and expect to reduce our ownership in GM as quickly as is appropriate, a spokesman for Canadian Industry Minister Tony Clement said in an emailed statement to Reuters

U.S. auto sales have been weaker than expected this year and some analysts have also rolled back expectations for the strength of recovery in 2011.

The prospect that a follow-on stock offering could correspond to stronger signs of recovery for the industry and GM is a consideration that could lead the UAW and Canada to hold off from selling in the IPO, the sources said.

The U.S. Treasury, meanwhile, is still seeking to get below the 50 percent threshold if market conditions allow, to help distance GM from the Government Motors tag that critics have applied, the sources said.

With the approach of U.S. midterm congressional elections in November, the IPO remains a politically sensitive issue. The Obama administration is eager to paint the auto industry bailout and GM's IPO as a success in the face of continued voter skepticism.

GM needs to have a market valuation of about $67 billion if U.S. taxpayers are to break even on the common stock the Treasury still holds, according to an estimate prepared by Neil Barofsky, inspector general for the government's Troubled Asset Relief Program.

That excludes the $2.1 billion in preferred stock also held by the U.S. government.

(Reporting by Soyoung Kim and Clare Baldwin in New York, Kevin Krolicki in Detroit and Philipp Halstrick in Frankfurt; editing by Carol Bishopric)

(Additional reporting by John McCrank in Toronto)

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