GM sheds some 'Government Motors' stigma with $5.5 billion stock purchase
U.S. Treasury plans full exit within 15 months
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The U.S. Treasury has recouped about $28.6 billion of the $49.5 billion it invested in GM as part of the automaker's U.S.-steered bankruptcy in 2009. |
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DETROIT -- General Motors took a big step toward shedding its "Government Motors" stigma today by disclosing plans to buy 200 million GM shares from the U.S. Treasury for $5.5 billion.
After GM's sale, which should close by Dec. 31, the government will own about 300 million shares, for a fully diluted stake of 19 percent. The federal government intends to unload its entire stake in GM within 12 to 15 months, the Treasury said separately.
GM will pay $27.50 a share, an 8 percent premium over its Tuesday closing price of $25.49. GM CFO Dan Ammann said the price was set through negotiations between GM and Treasury officials.
During a press briefing, Ammann said the sale is "very attractive to our company, to our shareholders" and that it's "good for the business in terms of continuing to remove the perception of government involvement in the company, which is going to be good for sales and for the customer base over time."
GM first approached Treasury officials after the U.S. presidential election in November, but was rebuffed when it offered only to pay market value for the government's stock, a senior Treasury official told Reuters.
Treasury then rejected a second offer of a small premium before the sides finalized the deal on Tuesday afternoon, said the Treasury official, who asked not to be identified discussing the negotiations. "We've always looked at this as balancing speed of exit with maximizing return, and GM basically made us what we felt was a very attractive offer," the Treasury official said.
Recouped investment
So far, Treasury has recouped about $28.6 billion of the $49.5 billion it invested in GM as part of the automaker's U.S.-steered bankruptcy in 2009. The main chunks came from the $13.5 billion the government received from GM's November 2010 initial public offering and $6.7 billion from a loan that GM repaid in April 2010.
The remainder came from a preferred-stock repurchase and payments of interest and dividends by GM. The sale announced today will add $5.5 billion.
After the buyback, the government would have to sell its remaining 300 million shares at an average price of $69.72 to break even on it investment. The Treasury Department said that it will begin selling the remainder of its GM shares as early as next month.
"This announcement is an important step in bringing closure to the successful auto industry rescue," CEO Dan Akerson said in a statement. "It removes the perception of government ownership of GM among customers and it demonstrates confidence in GM's progress and our future."
Investors greeted the news positively. GM shares rose 6.6 percent to close at $27.18. More than 54 million shares traded hands, well above the average volume of 8.9 million shares.
Higher EPS
GM said the sale should boost its earnings per share because GM's total shares outstanding will be reduced by about 11 percent. GM said it will take a $400 million fourth-quarter charge as a result of the transaction.
Morgan Stanley analyst Adam Jonas said the share purchase should help GM improve its image among car buyers and boost its share price.
"GM has a clear path to shake the 'Government Motors' moniker once and for all," Jonas wrote in a research note. "While impossible to quantify, we believe there is a genuine improvement in the commercial value for GM's products that can crystallize over time following an ownership change."
Ammann said GM's balance sheet will remain "very strong" after the share purchase, with $38 billion in liquidity.
He said Treasury has agreed to waive some of the oversight restrictions that have been in place since the bailout, including use of corporate aircraft. Restrictions on executive compensation remain in effect, he said.
Since the bailout, GM has announced U.S. investments of more than $7.3 billion and added or retained 20,000 jobs, the company said.
Reuters contributed to this report.
Editor's note: An earlier version of this story contained the incorrect time frame for the Treasury's exit from GM share ownership. The Treasury intends to sell its entire stake within 15 months.
You can reach Mike Colias at mcolias@crain.com.
