Treasury to sell more GM shares as it winds down stake
WASHINGTON/DETROIT (Reuters) - The Treasury Department on Wednesday announced plans to sell 30 million shares of General Motors Co (GM.N) common stock as part of its ongoing effort to wind down the government's stake in the bailed-out automaker.
The Treasury said it would sell the shares in a public offering in conjunction with the company's inclusion to the Standard & Poor's 500 index on June 6, which should help spur demand for the stock.
The offering will take place along with the sale of 20 million shares of GM stock held by the UAW Retiree Medical Benefits Trust, bringing the total size of the sale to 50 million shares, it said.
The exit of Treasury also will eliminate the stigma of government ownership - some critics dubbed the company "Government Motors" - that GM executives said has hurt sales.
The U.S. government, which initially took a 60.8 percent stake in the No. 1 U.S. automaker as part of its $49.5 billion bailout, had said it planned to sell its remaining shares by April 2014.
Some analysts said Treasury could even unwind its position by year end.
"This could open the door for additional capital actions including a potential dividend," RBC capital markets analyst Joseph Spak said in a research note. GM is scheduled to host its annual shareholders meeting in Detroit on Thursday.
The government looks certain to end up billions of dollars in the hole on the cost of the bailout. Treasury officials have said the goal was not to turn a profit but to save U.S. jobs.
Treasury has recovered $31.7 billion in bailout funds so far, with $17.7 billion still outstanding. After accounting for the expected proceeds from this latest sale, Treasury would need to sell its remaining shares for an average of more than $78 a share to break even.
Treasury officials declined to comment further on the timing of the latest sale, but analysts said the S&P listing was a big factor.
"It's no coincidence that the company's inclusion in the S&P 500 would ... enable the Treasury to be able to sell," Gabelli & Co auto analyst Brian Sponheimer said.
GM shares were down about 2 percent at $34.23 on Wednesday afternoon, but this latest offering won't come to market until after the S&P 500 listing. At Wednesday's price, Treasury's sale would net more than $1 billion. The government will own less than 200 million shares after the public offering is completed.
Shares in GM were above the $33.00 a share price of its November 2010 initial public offering post bankruptcy.
GM will rejoin the S&P 500 index .SPX on Thursday after the close of trading. This is seen as a milestone since the company filed for bankruptcy reorganization in 2009. As a result, GM was kicked out of the S&P 500 slot.
The automaker's return to the S&P 500 is expected to prompt stronger demand for its stock. Companies often benefit from a bump up in stock price when they are added to the S&P, in part because some funds that track the index need to hold the stock.
There was $13.9 trillion held in U.S. mutual funds at the end of April, $6.9 trillion of which was held in equity mutual funds, according to Lipper, a unit of Thomson Reuters. Of that amount, roughly $636 billion was held in mutual funds and exchange-traded funds that index themselves to the S&P 500.
"We appreciate the opportunity to assist in this offering made possible by our rejoining the S&P 500," GM Chief Financial Officer Dan Ammann said. "Our focus remains on continuing the progress we are making in the marketplace."
Analysts expect GM's stock also to get a boost this year from the rollout of redesigned full-size pickup trucks. The 2014 Chevrolet Silverado and GMC Sierra trucks, which are now available, are key profit drivers for GM. Citi has estimated the new trucks could generate more than $1 billion in additional operating earnings in 2013 and 2014.
With favorable reviews for the new trucks, as well as the company's small cars gaining market share and the resurgence of its Cadillac luxury brand, GM is performing well in its core North American market, Gabelli's Sponheimer said.
"There's clearly a lot of work ahead to do in other markets, but at least for the next 12 months and certainly until Ford (F.N) unveils its next F-series (pickup) we're looking at some pretty significant tailwinds for GM," he said.
The revenue the Treasury will receive from the stock sale will help the government remain below the nation's $16.7 trillion statutory debt limit, potentially buying the Obama administration and lawmakers more time to strike a deal to raise the debt cap and avoid a default.
A spokeswoman for Canada's finance minister said on Wednesday that Canada's federal government and the province of Ontario have no plans to sell their combined 9 percent stake in GM at this time.
"We are not interested in being a long term shareholder in a private corporation and we remain committed to exiting from ownership of GM as quickly as feasible," spokeswoman Kathleen Perchaluk said.
Citigroup Inc, JPMorgan Chase & Co and Morgan Stanley are acting as the joint book-running managers of the proposed offering, the Treasury said.