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GM to pay $5.5bn for government stake

Dec 19 2012 17:46 Reuters
General Motors

General Motors

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New York - General Motors said on Wednesday it will buy back 200 million of its shares from the US Treasury, which intends to sell the rest of its GM stake over the next 15 months, bringing to an end ownership that led to the nickname "Government Motors".

Chief Financial Officer Dan Ammann said GM will pay $5.5bn, or $27.50 a share, for the Treasury stake in a deal expected to close by year-end. That represents a 7.9% premium on Tuesday's closing price.

GM shares rose 8.7% to $27.72 in premarket dealings.

Treasury said it will sell its remaining stake of about 300.1 million shares "through various means in an orderly fashion" over the next 12 months to 15 months, and could begin the process as soon as January.

GM received about $50bn from the US Treasury as part of its 2009 bankruptcy restructuring in 2009 under the Troubled Asset Relief Program (TARP).

The deal will raise the proceeds Treasury has recovered to $28.6bn. That leaves $20.9bn left on the original bailout amount, meaning the government would have to sell its remaining shares at an average price of $69.72 to break even.

The government bailed out GM and Chrysler Group in a move to protect jobs - a number it put at more than 1 million.

"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," assistant secretary for Financial Stability Timothy 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."

After the buyback, Treasury will still own a stake of about 19%, down from about 26% currently. Ammann said GM will not buy more shares directly from Treasury after this buyback is completed.

Ammann said the move and resulting Treasury plans will remove an "overhang" on the stock that has hurt sales and bring an "element of closure" to the bailout.

GM will end the year with estimated liquidity of about $38bn, even after the deal, he said. That will add to earnings per share by reducing the number of outstanding shares by about 11%.

GM will take a charge of about $400m in the fourth quarter tied to the buyback.

In addition, Treasury has agreed to relinquish certain governance rights, including required levels of US manufacturing and barring the purchase of corporate jets, Ammann said.

Senior executive payment caps under TARP remain in place.

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