Rocketman
American Worker
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 6.7 percent to $27.10, or $1.59.
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.
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.
Still, taxpayers will almost certainly lose billions of dollars in the $49.5 billion GM bailout. If the government sold the rest of its stock at current prices, taxpayers would lose more than $13 billion.
"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. "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 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.
Ammann said the company has "no current plans" to buy or lease corporate aircraft. He 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."
From The Detroit News: http://www.detroitnews.com/article/20121219/AUTO0103/212190382#ixzz2FWRvIPZL
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 6.7 percent to $27.10, or $1.59.
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.
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.
Still, taxpayers will almost certainly lose billions of dollars in the $49.5 billion GM bailout. If the government sold the rest of its stock at current prices, taxpayers would lose more than $13 billion.
"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. "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 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.
Ammann said the company has "no current plans" to buy or lease corporate aircraft. He 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."
From The Detroit News: http://www.detroitnews.com/article/20121219/AUTO0103/212190382#ixzz2FWRvIPZL