The US Treasury is expected to lose billions of dollars when it sells its remaining stake in General motors over the next 12 to 15 months. General Motors plans to pay $27.50 per share—an 8 percent premium over the Dec. 18 closing price—but well below the $33 price set in November 2010.
“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, and it demonstrates confidence in GM’s progress and our future,” said Dan Akerson, chairman and CEO of GM.
GM will purchase 200 million shares of the Treasury-held stock in the next few days, and the remaining 300 million shares will be sold to the public in the next 12 to 15 months, subject to market conditions. Some sales could begin as early as next month.
Until recently, there was no indication the government was in any rush to sell of its stake in GM. In fact, during the presidential election, some voters may have shirked Republican incumbent Mitt Romney for his call for the White House to sell off its GM stake in June, when shares fell as low as $18.72. At that rate, the government’s losses would have been $1.5 billion higher.
Still, regardless of the date of sale, a full recoup is unlikely. According to industry analysts, shares would have to sell for $53 for the government to break even.
“The auto industry rescue helped save more than a million jobs during a severe economic crisis, but TARP was always meant to be a temporary, emergency program. The government should not be in the business of owning stakes in private companies for an indefinite period of time,” Timothy G. Massad, the department’s assistant secretary for financial stability, said.
The federal government became the largest GM shareholder after the $49.5-billion bailout of the company in 2008 and 2009. Since that time, GM has expanded its product line and added jobs, investing more than $7.3 billion in the United States.
During a holiday event with reporters last week, Akerson revealed his desire for the government to sell off its stake in GM. According to GM research, some potential buyers will not purchase the company’s products since it has been dubbed “Government Motors,” and although Akerson said the government “stayed out” of GM’s day-to-day management, it still had to meet certain restrictions while it owed TARP funds. Executive salaries were limited, for example, and the company has been barred from owning corporate aircraft.
“This is fundamentally good for the business,” Akerson said.
The move was approved by the GM board Dec. 18 after the company took feedback from its management and financial advisors.
Standard and Poor’s Ratings Services analyst Robert Sculz told the LA Times the deal will not affect GM’s credit positions since it has more than enough cash to handle the transactions.
“From our point of view, this is very attractive to the company and to shareholders,” said GM CFO Dan Ammann. “It obviously brings some clarity and certainty around the U.S. Treasury exit and the timing of that, which has been a question in the marketplace.”
