Washington — The Obama administration said Wednesday it will
sell 200 million shares — or 40 percent of its remaining stake in
General Motors Co. — back to the automaker and announced plans to
completely exit the Detroit automaker by March 2014.
The Detroit
automaker said it will purchase 200 million shares of GM stock held by
Treasury for $5.5 billion — or $27.50 per share — nearly $2 above the
stock's closing price on Tuesday. GM shares jumped sharply on the news
and were up 7.5 percent to $27.36, or $1.90, early afternoon in very
heavy trading.
The U.S. Treasury, after more than a year of
refusing to say when it might start selling its remaining stake in GM,
said it willannounce a written plan in January to shed its remaining 300
million shares over the next 12 to 15 months, likely in a series of
small stock sales.
The Treasury's move is intended to minimize the
impact of the stock sale on the share price — and the government's
state will shrink from 26.5 percent to less than 19 percent — but the
exit could be completed far more quickly.
The exit plan may prove
to be a boost to GM's lagging stock price and to some car buyers, who
have avoided GM because of the "Government Motors" label.
The exit
timetable signals the end of one of the most extraordinary government
interventions in the U.S. economy in history — the rescue and partial
nationalization of two U.S. automakers and their finance arms supported
by two U.S. presidents.
Still, taxpayers will almost certainly
lose billions of dollars in the $49.5 billion GM bailout - and the
government would need to sell its remaining shares for about $70 each to
break even. If the government sold the rest of its stock at current
prices, taxpayers would lose more than $13 billion. But profits from the
bank and AIG bailouts will largely offset the auto bailout losses.
"The
government should not be in the business of owning stakes in private
companies for an indefinite period of time," Assistant Treasury
Secretary Tim Massad said in a statement who oversees the $700 billion
Troubled Asset Relief Program. "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."
The Treasury has also agreed to waive its ban on GM
using corporate aircraft — a condition it imposed on a few companies
that got large bailouts in 2008 and 2009 — but government pay
restrictions on top executives remain in force.
The restrictions
limit most GM executives to no more than $500,000 a year in cash
salaries. GM chief financial officer Dan Ammann said the issue is one of
"ongoing discussions" between GM and Treasury.
The Treasury is
also waiving a "vitality commitment" that required certain U.S.
manufacturing volumes — but GM is already exceeding it and expects to
continue, the company said.
Despite the government ownership,
White House officials insisted they would have no role in GM's
management, though there were some exceptions. In one notable move, the
Obama administration vetoed a proposal by GM in 2009 to move its
corporate headquarters from Detroit to Warren.
Ammann said the
company has "no current plans" to buy or lease corporate aircraft - but
company executives have long chafed at the fact they are forced to fly
commercial - unlike other top corporate executives.
Ammann
declined to discuss when the automaker and Treasury began negotiations
about the sale or how it settled on the price. Ammann said GM doesn't
expect to buy the remaining Treasury shares.
GM CEO Dan Akerson
told company executives in an email that the move would help end a
painful chapter in the automaker's life that nearly saw the company
collapse in late 2008 without emergency government assistance.
"Today,
GM and the U.S. Treasury are putting in motion a plan that will begin
to close the books on the extraordinary government assistance that saved
the company and our industry," Akerson wrote. "It has never been far
from my mind that taxpayers rightfully expected us to change the way we
do business in exchange for a second chance."
GM — which was
criticized for corporate arrogance and for a moribund culture — has
reshuffled its entire executive lineup since 2009 and made dramatic
changes in how it does business.
"We are learning to be humble and to genuinely appreciate every customer," Akerson wrote.
In a Detroit News interview in 2011, Akerson said GM wasn't changing fast enough.
"Whoever
comes after me; it's going to be a more important appointment than mine
because he or she will have to carry on a cultural revolution here.
It's just like the Communist Party in China in the 1960s, there has to
be a cultural revolution here," he said.
GM — which last month
obtained a new $5.5 billion line of credit — said its balance sheet will
remain strong, with estimated liquidity of $38 billion at the end of
2012, following the closing of the share buyback.
Several analysts have suggested the company would use some of its liquidity to buy back shares.
"A
U.S. Treasury sell-down was increasingly anticipated, although the
actions were earlier than we expected and at a lower price," Peter
Nesvold, an analyst with Jefferies & Co. wrote in a research note
Wednesday. "The structure was probably more surprising, as it affords a
premium to market price for a control stakeholder."
David Whiston,
a senior equity analyst for Morningstar, said he was surprised the
government didn't wait for a $33 a share price, but said investors
likely were expecting an announcement following the quick AIG sale.
"This
helps with the ("government motors") stigma, but there will always be a
few hard line consumers who will never forgive GM," he wrote in an
email Wednesday. "That doesn't bother me, as GM still sells plenty of
cars and has great product. Some taxpayers will be upset by the loss,
but I think those people will never be happy about the situation. Even
if the sale had happened at $33 (the IPO price) those same consumers
would have criticized Obama and GM."
The Canadian federal and
Ontario governments — which gave GM a separate $10 billion bailout —
still hold about 9 percent of GM's shares. Canadian officials said in
Toronto they have no immediate plans to sell.
The announcement
comes exactly four years to the day that President George W. Bush
announced he would rescue GM and Chrysler with a $17.4 billion bailout
in December 2008 using the $700 billion Troubled Asset Relief Program.
Bush
stepped in after Congress failed to act. He added $7.5 billion for GM
and Chrysler's auto finance arms and President Obama added $60 billion
to the $85 billion auto bailout.
"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," Massad said.
Last week, the Treasury exited another major TARP recipient AIG.
GM stock is still trading far below its November 2010 initial public offering at $33 a share.
The
repurchase price of $27.50 per share represents a 7.9 percent premium.
The share buyback is expected to close by the end of the year.
The
Treasury initially owned nearly 61 percent of GM as part of the bailout
as it swapped about $42 billion of the loans for stock in the
reorganized company after it exited bankruptcy in July 2009.
The
Obama administration forced GM and Chrysler into bankruptcy as a
condition of getting additional government aid. The administration
forced out GM CEO Rick Wagoner and forced a tie-up with Fiat SpA.
The Treasury has said it expects to lose $24.3 billion on the $85 billion auto bailout.
Treasury
also holds a 74 percent stake in Ally Financial Inc., the Detroit-based
auto lender, as part of a $17.2 billion bailout.
Last year, the government exited Chrysler Group LLC and booked a $1.3 billion loss on its $12.5 billion bailout.
The
government had planned an initial public offering of Ally in 2011 but
put it on hold because of market conditions. Any IPO won't occur until
after Ally's troubled mortgage unit ResCap completes its bankruptcy
restructuring.
dshepardson@detnews.com
(202) 662-8735
Staff Writer Melissa Burden contributed.
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