GM To Repurchase 200 Million Shares From U.S. Treasury
General Motors announced that it will start to buy 200 million shares currently owned by the U.S. Treasury. The move is part of the government’s efforts to shed all its holdings in GM over the next 12 to 15 months. In 2009, the U.S. Treasury purchased 500 million shares of GM as part of its $85 billion auto-industry bailout.
GM will pay the Treasury $5.5 billion for the shares, or $27.50 per share. That represents a 7.9-percent premium over the GM stock closing price yesterday, and will help ensure that the Treasury doesn’t lose too much money in divesting its GM stock.
“This announcement is an important step in bringing closure to the successful auto industry rescue, it further removes the perception of government ownership of GM among customers,” GM CEO Dan Akerson said in a statement. The automaker has attracted the unfortunate nickname “Government Motors” from those opposed to the government’s auto-industry bailouts.
After the GM share buy-back, which is expected to finish by the end of this year, the Treasury will still own 300 million shares — about 19 percent of the company. The Treasury has a plan to begin selling those remaining shares starting in January 2013, and expects to divest that stake over the next year.
However, Automotive News reports that the government would need to sell those shares for $69.72 in order to break-even on the bailout — but that’s more than triple the stock’s current value. In other words, the Treasury is expected to lose as much as $25 billion on its bailout fund by selling the remaining 300 million shares. That likely won’t sit well with taxpayers who indirectly contributed to the auto bailout, but it might be a small price to pay for saving GM – and a sizable chunk of the automotive industry — from going under in 2009.
“The auto industry rescue helped save more than a million jobs during a severe economic crisis,” Treasury assistant secretary for financial stability Timothy G. Massad said in a statement. “Moving to exit our investment in GM within the next 12 to 15 months is consistent with our dual goals of winding down TARP as soon as practicable and protecting taxpayer interests.”
Sources: GM, U.S. Department of the Treasury, Automotive News
By Jake Holmes