By Autoblog.com - General Motors announced in a press release today that it plans to buy 200 million shares of its own common stock back from the US Department of the Treasury, for US$27.50 per share -- some US$5.5 billion in total. The transaction is expected to close before the end of the year. The move by the U.S. Treasury marks a significant first step in a plan to divest itself of GM holding entirely over the course of the next 12 to 15 months, "subject to market conditions."
After this large buyback, the American Treasury will still hold some 300 million shares of the automaker's stock -- roughly equal to a 19-per cent stake. Treasury officials say that sale of the rest of the shares will begin as early as next month, "through various means and in an orderly fashion." The American government plans to fully divest itself of GM shares over the next 12 to 15 months.
The US$27.50 per share figure represents an eight-per cent premium over the current share price, and was agreed upon after negotiations between GM and Treasury officials.
Previously, the U.S. government had seemed reluctant to sell off its post-bailout stake in GM, as to do so at current market prices would mean a large loss of investment for the Treasury. Reports have varied, but the "break even" point for the American government has usually been pegged at roughly US$50 per share.
According to the Treasury's own press release (see below), the American government invested a total of US$49.5 billion in 2008 and 2009 to help secure GM. With this latest buyback added in, the agency has "more than US$28.7 billion" of its original investment.
Three years ago, the Canadian Federal Government and Ontario Provincial Government contributed CAD$10.8-billion toward an unprecedented bailout of the North American auto sector, which account for around 9 per cent of GM's shares. Ontario's Finance minister, Dwight Duncan stated in November that the Canadian government should get out of the auto business.
Find press releases from both the U.S. Treasury Department and GM below.
Treasury Announces Intent to Fully Exit GM Investment Within the Next 12-15 MonthsWASHINGTON -- Today, as part of its continuing efforts to wind down its investments in the Troubled Asset Relief Program (TARP), the U.S. Department of the Treasury announced its intent to fully exit its investment in General Motors (GM) within the next 12-15 months, subject to market conditions.
Tresaury currently holds 500 1 million shares of GM common stock. Treasury intends to exit that investment through the following means:
- GM will purchase 200 million shares of GM common stock from Treasury at $27.50 per share. This transaction is expected to close by the end of the year.
- Treasury intends to sell its other remaining 300 1 million shares through various means in an orderly fashion within the next 12-15 months, subject to market conditions.
- Treasury intends to begin its disposition of those 300 1 million common shares as soon as January 2013 pursuant to a pre-arranged written trading plan. The manner, amount, and timing of the sales under the plan are dependent upon a number of factors.
"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," said Assistant Secretary for Financial Stability Timothy G. Massad. "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."
In 2008 and 2009, Treasury invested a total of $49.5 billion to help stabilize and restructure GM -- as part of a broader rescue of the American automotive industry during a severe economic crisis. Including GM's purchase of common stock from Treasury announced today, Treasury has recovered more than $28.7 billion of its investment in GM to date through repayments, sales of stock, dividends, interest and other income.
According to independent estimates, the rescue of the American auto industry helped save more than 1 million jobs. Moreover, since June 2009, the auto industry has added a quarter of a million new jobs.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy any shares of GM common stock, nor shall there be any offer, solicitation or sale of shares of GM common stock in the United States, any state thereof or any other jurisdiction in which such offer, solicitation, or sale would be unlawful absent registration or qualification under applicable securities laws or an applicable exemption from such registration or qualification requirements.
GM to Buy Back Stock from U.S. Treasury Department -- U.S. Intends to Fully Exit GM Investment Within 12-15 MonthsDETROIT -- General Motors today said it will purchase 200 million shares of GM common stock held by the U.S. Department of the Treasury for $5.5 billion, or $27.50 per share. The share buyback is part of the Treasury's plan, also announced today, to fully exit its entire holdings of GM stock within 12 to 15 months, subject to market conditions.
Treasury has announced its intention to sell its remaining shares of common stock into the market through various means and in an orderly fashion. Treasury intends to begin its disposition of its remaining shares as soon as January 2013, consistent with a pre-arranged written trading plan. In addition, Treasury has agreed to relinquish certain governance rights that were included in the U.S. Treasury Secured Credit Agreement with GM.
"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.
Dan Ammann, senior vice president and CFO added, "A fortress balance sheet has been a pillar of GM's financial strategy and has enabled us to undertake today's actions. GM's balance sheet will remain very strong, with estimated liquidity of approximately $38 billion at the end of 2012, following the closing of the share buyback."
The repurchase price of $27.50 per share represents a 7.9 percent premium over the closing price on December 18, 2012. The share buyback is expected to close by the end of the year. This transaction will be accretive to earnings per share, as GM's total shares outstanding on a fully diluted basis will be reduced by approximately 11 percent. In association with this share buyback, GM expects to take charge of approximately $400 million in the fourth quarter, which will be treated as a special item.
After the repurchase, Treasury will continue to own approximately 300 million shares of GM common stock, or approximately 19 percent of the outstanding shares on a fully diluted basis. Government ownership of GM stock was the result of the auto industry rescue that began under President George W. Bush in 2008 and which was expanded by President Barack Obama in 2009.
The industry in general, and GM in particular, have rebounded sharply since the rescue. Since the rescue, GM has announced investments of more than $7.3 billion in the U.S. and created or retained more than 20,000 jobs.
"We come to work every day grateful that taxpayers from the US and Canada stepped forward to rescue our industry, and determined to show this extraordinary help was worth it," Akerson said.
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