NEW YORK -- Canada and Ontario rejected a U.S. offer to sell more shares in General Motors Co.'s $15.8 billion initial public offering this week, allowing the Canadian governments to benefit if the automaker's shares continue to rally as they did this morning.
U.S. President Barack Obama's administration increased the number of shares it plans to sell by 36 percent and the UAW's retiree medical trust has added 25 percent to its offering as Canadian governments stuck with the amount announced Nov. 3, U.S. filings show. The U.S. had asked them to boost the share sale as well, three people familiar with the talks said.
If GM shares continue to trade over the initial $33 a share -- they were trading most of today for more than $35 a share -- Canada will recover more of its investment in the bailout than if it sold more shares in the IPO. Canada and the province of Ontario control 11.7 percent, the U.S. has a 61 percent stake and the health fund controls 17.5 percent.
“We feel that it is the adequate balance between being part of the IPO, which we have always said we would be, and at the same time doing so in a way where we are going to chunk it out over time to try and maximize taxpayer protection,” Canadian Industry Minister Tony Clement said today.
Canada made a “prudent” decision on GM shares as it seeks to protect “taxpayer value,” Clement said.
Noreen Pratscher, a spokeswoman for GM, didn't immediately respond to a telephone message seeking comment. A spokesman for the Treasury, Mark Paustenbach, declined to comment.
Canada contributed $7.1 billion to the U.S.-led GM bailout in June 2009 and Ontario provided $3.5 billion. In exchange, they received 175 million shares and $1.1 billion has been repaid.
Prime Minister Stephen Harper said then that his government was assuming “for budgetary purposes” that it won't recover any of its investment. The governments need an average price across all of their shares of about $54.25 to break even.
The common shares carry a book value for the government of Canada of about $15 a share right now, Canadian Finance Minister Jim Flaherty told reporters outside Parliament today. Canada also has preferred shares in GM, which he said the government will continue to hold. GM is buying back $2.1 billion in preferred shares owned by the U.S.
“The Canadian government may have decided that the next tranche of shares will sell at a higher price,” said Joseph D'Cruz, professor of strategic management at the University of Toronto's Rotman School of Management. “Whether the investment is written off or not doesn't change what the government should be doing. They have an obligation to maximize returns.”
GM shares were listed on the Toronto Stock Exchange today under the ticker symbol GMM, trading in U.S. dollars.
The combined Canadian stake in GM will fall to 9.3 percent through the IPO if underwriters exercise an option to buy additional shares. Canada will need to sell its remaining stake for an average of $60.08 a share, Bloomberg data show.
Canada agreed to sell 30.5 million shares, which would raise as much as $1 billion, and may sell as many as 4.6 million more shares, worth about $150 million, among those set aside for investment banks in the so-called overallotment option.
“We had discussions early on with the U.S. government and with the government of Ontario,” Flaherty said. “We made our own decision.”
The U.S. is now planning to sell 358.5 million shares after initially agreeing to 263.5 million and the UAW health fund will sell 89 million shares, an increase from the original pledge for 71 million. The two GM stakeholders also may sell 50.2 million more shares as part of the overallotment, a U.S. regulatory filing showed.
The U.S. and underwriters asked the Canadian government to sell more shares, said three people briefed on the discussions, who asked not to be named because the talks are private. The Treasury wanted to provide future shareholders as much liquidity as possible while minimizing its losses on the deal, the people said.
The U.S. Treasury, which is taking a loss on its portion of the sale, needs to sell GM stock for an average of $43.67 a share to break even on its entire investment, data compiled by Bloomberg show.
If underwriters exercise the overallotment option as expected, the remainder of the U.S. government's GM shares would need to be sold at an average of $53.07 apiece, according to data compiled by Bloomberg.