DETROIT — The U.S. Treasury announced Wednesday a plan to liquidate its remaining stake in General Motors Co. over the next 15 months, starting with the sale of about 40 percent of its shares by the end of December.
The move is intended to settle a $50 billion bailout that saved the manufacturer but also set off a debate about government intervention in private business.
Taxpayers will lose an estimated $12 billion on the deal, but it gets the government out of the car business. GM has done well over the past three years, generating $16 billion in profits as car sales rebounded. Now it looks forward to losing the stigma of government ownership - including the derisive moniker “Government Motors” - that it claims has cost it sales since it exited bankruptcy protection in 2009.
As part of a deal announced Wednesday, GM will spend $5.5 billion to buy back 200 million shares from the Treasury from now through the end of the year. That will leave the government with 300 million shares, or a 19 percent stake, which it plans to sell in the next 12-15 months.
The government bailed out GM with $49.5 billion during the financial crisis in 2008 and 2009. Otherwise the automaker would likely have been auctioned off in pieces. The Treasury Department said it will have recouped about $28.7 billion after GM completes its buyback. So, breaking even would require selling the remaining 300 million shares for an average of about $70 each.
That’s more than doublethe current trading price. GM will buy the 200 million shares at $27.50 each. The shares rose $1.69, or 6.6 percent, to close Wednesday at $27.18.
The end of government ownership in GM is “going to materially lift an overhang that’s been over the stock,” said Peter Nesvold, a Jefferies & Co. analyst in New York. “There’s been this nagging fear anytime the stock gets closer to $27 or $28 where the chatter about the government selldown picks up again.”
At a price of $30 apiece, the government gets back $9 billion for its remaining shares. That means taxpayers would recoup around $38 billion, or about 77 percent, of the initial investment, resulting in a loss of about $12 billion.
U.S. ownership “put an uncertainty discount into the stock price that was offsetting some of the positives of the company,” said Jim Kee, president of South Texas Money Management in San Antonio. “But now that the government plans to exit, that will mean that GM’s decisions are GM’s and not driven by any other considerations that might not be shareholder-focused.”
GM says having the government as an owner kept customers away from dealerships. Chief Financial Officer Dan Ammann told reporters Wednesday that GM has “market research that we’ve done over time that has suggested that the government involvement in the business has had some impact on sales.”
As part of the stock buyback deal, GM almost immediately will be allowed to own a corporate jet and won’t be required to manufacture a certain percentage of cars and trucks in the U.S. GM said it already has exceeded the manufacturing requirements and will continue to do so for the foreseeable future. It has no immediate plans to buy or lease corporate jets, but it has chartered jets for executive travel at times.
However, governmentordered pay restrictions will remain in effect until the Treasury completes the sale of its remaining 19 percent stake. Chief Executive Officer Dan Akerson has said the pay limits have hurt the company as it tries to recruit top talent.
The bailouts of GM and rival Chrysler were part of the Troubled Asset Relief Program created by Congress during the financial crisis in the fall of 2008. Last week, the Treasury Department sold its final shares of stock in insurance giant American International Group, which had received the largest amount of government support during the financialcrisis. With Wednesday’s GM stock buyback, the government has recovered $386.5 billion - 92 percent - of the $418 billion in funds disbursed through the Troubled Asset Relief Program.
The GM bailout played a role in this year’s presidential election, helping President Barack Obama capture the key state of Ohio, as well as Michigan, analysts say. Ohio is second only to Michigan in auto-related employment. Obama’s opponent, Mitt Romney, opposed the federal bailout, instead favoring private funding to get GM through bankruptcy. But private loans weren’t available early in the financial crisis.
The Treasury Department said Wednesday that the investment in GM was worth it.
“The auto industry rescue helped save more than a million jobs during a severe economic crisis,” said Timothy Massad, the Treasury Department’s assistant secretary for financial stability. “The government should not be in the business of owning stakes in private companies for an indefinite period of time.”
Initially the government got 912 million shares in exchange for the money it lent to GM. It sold 412 million shares for $33 apiece in GM’s initial public stock offering in November of 2010.
GM shares rose shortly after the initial public offering, but then slid as the U.S. economic recovery slowed and Europe’s economy took a turn for the worse. As the shares fell, the government balked at further sales.
Although GM is paying a premium for the government shares, Ammann said GM’s other shareholders benefit because the number of shares on the market will be reduced about 11 percent. That should increase the value of the remaining shares.
The move was approved Tuesday evening by the GM board after the company got opinions from its management and financial advisers, GM said.
GM will fund the deal out of its cash balance, which at the end of September was close to $32 billion.
Information for this article was contributed by Tom Krisher and Martin Crutsinger of The Associated Press; by Jerry Hirsch of the Los Angeles Times; and by Tim Higgins of Bloomberg News.
Front Section, Pages 1 on 12/20/2012