(Adds comments from senior Treasury official, updates stock
* $5.5 bln buyback by GM expected to close by end December
* Treasury has recovered $28.6 bln of its $50 bln bailout
* Allows GM to move away from 'Government Motors' image
* Canada has no current plans to sell its GM stake
* GM shares up 7.1 pct
(Adds Treasury official's comments, details on talks between
Treasury and GM)
By Ben Klayman
Dec 19 The U.S. Treasury plans to sell its stake
in General Motors Co over the coming year, all but
assuring a multibillion-dollar loss in a move that will end the
automaker's "Government Motors" era.
Treasury's plan - a two-step process that includes a $5.5
billion stock sale to GM - is part of a broader push to wind
down the controversial financial bailout under the Troubled
Asset Relief (TARP) program. TARP was created by former
president George W. Bush to prevent the collapse of the U.S.
banking industry during the 2007-2009 financial crisis.
The planned GM sale will raise the proceeds that Treasury
has recovered to $28.6 billion of the $50 billion bailout GM
received. With $20.9 billion left from the original bailout, the
government would have to sell its remaining shares at an average
price of $69.72 to break even.
GM shares were up 7.1 percent at $27.31 on Wednesday
afternoon on the New York Stock Exchange.
If Treasury, which will reduce its stake to about 19 percent
when the buyback closes this month from about 26 percent at
present, sold its remaining stock at the price GM is paying now,
it would come up short by more than $12 billion.
"GM wins," Jefferies analyst Peter Nesvold said, pointing to
the elimination of the government stake that has been acting as
a drag on the stock price and to eventual higher earnings per
share. "From a government standpoint, it's a mixed bag, but they
went into it to save jobs, not as an investment." He said the
buyback was lower than the $30 a share he had expected at the
very least and was occurring earlier than anticipated.
GM's planned buyback of 200 million shares will give it more
freedom from government oversight and likely result in a sales
boost as some consumers unhappy over the U.S. taxpayer-funded
bailout give the automaker a second look, GM Chief Financial
Officer Dan Ammann said.
"This is very attractive to the company, to our
shareholders," he told reporters at GM's Detroit headquarters.
"It obviously brings some clarity and certainty around the U.S.
"It's obviously good for the business in terms of continuing
to remove the perception of government involvement in the
company, which is going to be good for sales," he said, also
noting that the reduced share count would boost earnings.
GM approached Treasury officials after the U.S. presidential
election in November, but was rebuffed when it offered only to
pay market value for the government's stock, according to a
senior Treasury official. Treasury rejected a second offer of a
small premium before the sides finalized the deal on Tuesday
afternoon, said the Treasury official, who asked not to be
identified discussing the negotiations.
"We've always looked at this as balancing speed of exit with
maximizing return, and GM basically made us what we felt was a
very attractive offer," the Treasury official said.
TARP TRIP NEARS END
TARP was approved by Congress as a $700 billion program,
though Treasury eventually disbursed $418 billion. On Wednesday
it said it had recovered $381 billion to date, or about 90
"TARP was always meant to be a temporary, emergency program.
The government should not be in the business of owning stakes in
private companies for an indefinite period of time," Treasury
Assistant Secretary Timothy Massad said in a statement.
"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."
Under the deal, GM will pay $27.50 a share for the
Treasury-held shares, representing a 7.9 percent premium on
Tuesday's closing price.
Treasury said it will then sell its remaining stake of about
300.1 million shares "through various means in an orderly
fashion," and could begin the process, including sales on the
open market, as soon as January.
The auto giant was dubbed "Government Motors" by many
critics after it received its bailout package as part of the
bankruptcy restructuring in 2009 under TARP.
Treasury's plans echo other recent moves. On Tuesday,
Treasury said it would largely sell its remaining shares in
bailed-out banks over the coming 12 to 15 months. Last week it
sold the last of its common stock in American International
Group Inc at a profit.
This also would close Treasury's involvement with the U.S.
auto sector. In June 2011, the agency sold its remaining 6
percent stake in Chrysler to Italy's Fiat SpA, which
controls the U.S. automaker.
U.S. President Barack Obama heavily promoted his decision to
use public funds to rescue the auto industry and save jobs as he
campaigned for re-election in swing states like Michigan and
Ohio. Voters in both states backed him again in the Nov. 6
election, providing critical support in his victory.
Treasury officials reiterated on Wednesday that the auto
bailout saved more than 1 million U.S. jobs a nd was not meant to
turn a profit.
With Treasury's planned exit from GM, auto lender Ally
Financial Inc will be the last major TARP recipient that has not
yet paid back the government. Of the $17 billion it owes, Ally
has paid back $5.8 billion.
Separately on Wednesday, Canada Finance Minister Jim
Flaherty said his country had no immediate plans to sell its
stake in GM. Canada and the province of Ontario have a combined
9 percent stake.
Ammann said the move and resulting Treasury plans will
remove a "significant overhang" on the stock that has hurt sales
and bring an "element of closure" to the bailout. Company
research suggests eliminating the Treasury stake would benefit
sales, he said.
Ammann said the deal was good for shareholders, when asked
whether GM might be sued for paying Treasury a higher price than
where the stock was trading at the time of the announcement.
However, one large shareholder loved the deal, as a
spokesman for hedge fund manager David Einhorn said: "We applaud
GM management for unlocking shareholder value by releasing
excess capital and beginning a resolution of the government
Barclays analyst Brian Johnson said that once the government
reduces its stake, GM likely will be eligible for inclusion in
the Standard & Poor's 500 index, which could serve as a
catalyst to drive up the company's stock price.
GM will end the year with estimated liquidity of about $38
billion, even after the deal, Ammann said. That will add to
earnings per share by reducing the number of outstanding shares
by about 11 percent.
Ammann said the deal will be funded through cash and not tap
in to the $11 billion credit line GM secured last
Citi analyst Itay Michaeli said the deal showed GM's
confidence in its ability to generate cash despite worries about
the U.S. economy and the recession in Europe. "The ability to
spend this amount of money on a share buyback shows they are
putting their money where their mouth is," he said.
The deal also made a winner of Ammann, considered one of a
handful of GM executives who could succeed Chief Executive Dan
Akerson. Ammann, along with Akerson and GM general counsel
Michael Millikin, negotiated the deal with Massad, Treasury
Secretary Timothy Geithner, chie f investment officer Matt Pendo
and government attorneys over several weeks, according to th e
se nior Treasury official and another person familiar with the
talks who asked not to be identified.
Ammann did not provide details of the talks with Treasury,
when asked whether negotiations picked up following the
presidential election. Analysts said Treasury likely did not
want this deal to be turned into a political issue.
Treasury also may have wanted to wait for the unveiling of
the critical full-size pickup trucks that will go on sale next
year, analysts said. GM showed the new Chevrolet Silverado and
GMC Sierra on Dec. 13.
GM will take a charge of about $400 million in the fourth
quarter tied to the buyback.
In addition, Treasury relinquished certain governance
rights, including required levels of U.S. manufacturing and
barring the purchase of corporate jets, Ammann said. Senior
executive payment caps under TARP remain in place.
"For GM management, it was very important to get out from
under the 'Government Motors' moniker," Morgan Stanley analyst
Adam Jonas said.
(Additional reporting by Alister Bull in Washington, Jennifer
Ablan in New York, Paul Lienert in Detroit and Rick Rothacker in
Charlotte, North Carolina; Editing by Gerald E. McCormick,
Jeffrey Benkoe, Tim Ahmann, Matthew Lewis and Jan Paschal)