General Motors announced Wednesday it will purchase $5.5 billion of its stock from the U.S. Treasury, moving the government a step closer to ending the controversial bailout of the auto industry.
GM will buy 200 million shares for $27.50 each, a 7.9% premium over Tuesday's closing price, the automaker said. Treasury will still hold about 300 million shares, or 19% on a fully diluted basis, after the transaction and plans to sell its entire holding within 15 months, GM said.
The deal for 13% of the automaker's stock helps the Obama administration recoup part of the $49.5 billion invested in GM, the biggest piece of an industry bailout that became a centerpiece of the president's first term in office and drew criticism from Republican opponents. Cutting the stake could be good for GM's image and its stock.
Treasury said it plans to begin selling its remaining shares as soon as January. The sale announced Wednesday represents 40% of the government's remaining stake after the 2009 bailout and 2010 IPO. GM said it expects to record $400 million in costs this quarter because of the transaction, which it expects to close this year.
“We applaud GM management for unlocking shareholder value by releasing excess capital and beginning a resolution of the government stake overhang,” David Einhorn's hedge fund, Greenlight Capital, which owns 21.6 million GM shares, said in a statement.
“It's obviously good for the business in terms of continuing to remove the perception of government involvement in the company which is going to be good for sales,” GM CFO Dan Ammann told reporters at the automaker's Detroit headquarters Wednesday. “This is very attractive to the company, to our shareholders. It obviously brings some clarity and certainty to the U.S. Treasury exit.”
The Treasury Department, in a statement, said it was time to exit the GM stake. “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,” Timothy Massad, an assistant secretary, said in the statement. “The government should not be in the business of owning stakes in private companies for an indefinite period of time.”
The Congressional Budget Office estimated in October that the Treasury's Troubled Asset Relief Program, which bailed out companies including AIG, Citigroup Inc. and GM, will cost taxpayers $24 billion, down from an estimate of $109 billion in March 2010. The Treasury's most recent estimate of the cost to taxpayers for its rescue of GM, Chrysler and Ally Financial Inc. was $24.3 billion as of Sept. 30. The department updates the figure on a quarterly basis.