Treasury Exits from General Motors - Analyst Blog

By Zacks Equity Research,

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The U.S. Department of Treasury has recovered a total of $39 billion as it completed the divestment of its remaining stake in General Motors Company ( GM ) on Monday. The Treasury department provided a bailout loan of $49.5 billion to General Motors following its bankruptcy in 2009. Thus, the Treasury had to incur a loss of $10.5 billion.

Post bankruptcy, Detroit-based General Motors was primarily owned by the U.S. and Canada governments, and the UAW retiree health care trust fund.

The U.S. government had acquired 61% stake in General Motors in exchange for the bailout loan provided under the Troubled Assets Relief Program (TARP). The trust fund held 17.5% and the Canadian government held 11.7%. The remaining shares went to the bondholders of the old company.

In Nov 2010, General Motors initiated an IPO of common stock that helped it to repay $23.1 billion to the U.S. government. The Treasury was left with roughly 500.1 million shares of General Motors.

In Dec 2012, General Motors repurchased about 200 million shares from the U.S. government for $5.5 billion, leaving nearly 300 million shares with the Treasury. Post-sale, U.S. Treasury's stake in the company was reduced to nearly 18% from 26.5%.

In January this year, the Treasury initiated a plan to sell the remaining shares by next year and hired JPMorgan Chase & Co. ( JPM ), Citigroup ( C ) and Morgan Stanley & Co. ( MS ) for conducting the sale. The department revealed that the banks will get a penny for every share they sell, for a fee of up to $3 million.

In the first part of the pre-arranged trading plan, which was completed on Apr 11, 2013, the Treasury sold 58.4 million shares of General Motors for $1.6 billion. Thereafter, in June, the department sold another 30 million shares for $1.03 billion in an underwritten public offering.

In August, the Treasury raised another $811.1 million by selling the shares of General Motors. As of Sep 26, 2013, the department had recovered $35.4 billion of the amount it spent on the company via repayments, stock sales, dividends, interest, and other income by the end of August.

The Treasury announced the third phase of divestiture of its stake in General Motors on Sep 26. As of that date, the Treasury held 101.3 million shares or 7.3% stake of the company, down from the 500.1 million or 33% it had after General Motors' initial public offer (IPO) in Nov 2010.

According to the Treasury, the bailout was one of the essential aspects to recover the economy from recession and thus preventing millions of job losses. The auto industry is presently recovering with increase in demand in the U.S.

General Motors believes that this exit of government from the company will enhance its sales, as some of the customers, specially the pickup truck buyers, did not prefer government interference.  

Following the announcement, shares of General Motors increased 2% to $41.17 from $40.38 at the beginning of the trading session yesterday. However, the stock slipped to close at $40.90, resulting in a gain of 1.8% for the day.

Currently, General Motors retains a Zacks Rank #3 (Hold).

CITIGROUP INC (C): Free Stock Analysis Report

GENERAL MOTORS (GM): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

MORGAN STANLEY (MS): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: C , GM , IPO , JPM , MS

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