GM: Government Motors No More?
As it did with AIG (NYSE:AIG) last week, the U.S. Treasury Department has determined that the time has come to sell its stake in General Motors (NYSE:GM). Along with the troubled asset relief program, which the Obama administration will also begin to wind down, the government’s stake in GM is one of the last reminders of the financial crisis bailouts.
What does this mean for General Motors?
On Wednesday, the department outlined a plan to sell close to half of its stake, or 200 million shares, back to General Motors for $5.5 billion by the end of the year. Shares will be sold for $27.50 each, which is approximately 8 percent higher than the company’s closing price on Tuesday. The remaining 300.1 million shares will be sold in the next 12 to 15 months.
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“This announcement is an important step in bringing closure to the successful auto industry rescue, it further removes the perception of government ownership of G.M. among customers, and it demonstrates confidence in G.M.’s progress and our future,” said the company’s chairman and chief executive Dan Akerson in a statement.
In the middle of 2009, when both GM and Chrysler were struggling to remain profitable, the government provided bailout funds to both manufacturers, as well as Ally Financial, GM’s former financing arm. In total, the Treasury invested $49.5 billion in the car maker, and the administration led the company through a Chapter 11 filing that eliminated a large portion of its debt.
While the GM bailout is expected to lose money, as the break-even pricepoint is estimated at $53 per share, the Treasury stated that the bailout was always assumed to be unprofitable. However, the department stressed that the sale of its GM shares is consistent with its goal of “protecting taxpayer interests.”
CHEAT SHEET Analysis: Will the government sale be a positive catalyst for GM’s Stock?
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. As The New York Times reported, it is essential for General Motors to be restored as a fully private enterprise because the company fears that the “the taxpayer-financed bailout might hurt its ability to compete in the market place.” The Treasury’s divestiture will also show that the government is confident that the company can remain profitable in the future.
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