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US Treasury Lowers General Motors Stake - Analyst Blog

Posted
9/27/2013 9:30:00 AM
By: Zacks.com
Referenced Stocks:C;GM;JPM;MS

The U.S. Department of Treasury rolled out the third phase of divesting its stake in General Motors Company ( GM ) as part of its plan to dispose of remaining shares of the automaker by April 2014. The Treasury currently holds 101.3 million shares or 7.3% stake of the company, down from 500.1 million or 33% it had after General Motors' initial public offer (IPO) in Nov 2010.

The Treasury department provided a bailout loan of $49.5 billion to General Motors following its bankruptcy in 2009. Post bankruptcy, the company was primarily owned by the U.S. and Canada governments, and the UAW retiree health care trust fund.

The U.S. government took over a 61% stake 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. After the bankruptcy restructuring, General Motors' remaining assets were put into another entity called Motors Liquidation Company.

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

In December last year, 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 Department 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 billionin an underwritten public offering.

In August, the Treasury raised another $811.1 million by selling the shares of General Motors. 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.

Apart from General Motors, the Treasury department is recovering the money spent on other companies under TARP as well. It has recovered almost $404.9 billion or 96% of the $420.92 billion spent under the program. In fact, the department has made a profit of $1.58 billion under TARP, after including the additional income made from the beneficiary companies.

Following the announcement, the share price of General Motors increased to $37.35 from $37.19 at the beginning of the trading session. However, the stock slid to $36.95 by the end of the day, resulting in a loss of 0.65%.

General Motors currently carries a Zacks Rank #3 (Hold).



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