The U.S. Treasury is expected to sell a large percentage of stock in General Motors after the lock-up period expires on May 22. The lockup period has prohibited major shareholders from selling their shares since the launch of the automaker’s $23.1 billion IPO six months ago. The Treasury currently holds a 32 percent stake in GM.
Speculation over the timing and amount of the Treasury’s sell-off has some investors nervous. The Treasury holds $16 billion in GM stock which is currently trading below its IPO price.
There is speculation that GM could use a portion of its cash reserves to buy back a percentage of its shares directly from the U.S. government. At the end of last quarter, GM reported cash reserves of $36.5 billion.
The Treasury has reportedly not discussed its exit strategy with GM.
An unidentified source close to the automaker said, “GM’s got a higher level of cash on hand than it needs to run the business. It alleviates the overhang the market has been at least chattering about. It’s positive for the shares the Treasury has remaining to sell.” The source also said, “It’s a good, simple solution, as opposed to GM executives going out on the road and pressuring the stock in another big way.”
Although there are legal restrictions governing direct buy backs from a single shareholder, sources close to the matter feel that the transaction could be negotiated.
GM spokesman Jim Cain said, “Our objective ultimately is to generate sufficient cash flow to fund the business … and return excess cash flow to shareholders.” He added, “While we haven’t ruled out any potential uses of cash, we do have more to do to strengthen our balance sheet.”
Two years ago the Obama administration’s $50 billion bailout of GM gave it a 61 percent share in the troubled automaker. With last fall’s IPO, the federal government cut its share in GM to 32 percent, valued at about $16 billion.
Last Friday, GM shares closed at $31.07, down from last November’s IPO price of $33.00 per share.
Conventional wisdom is that the Treasury will sell off its remaining stake in GM sometime this year to keep the matter from becoming a political issue in the 2012 presidential race. According to sources close to the issue, the Treasury will not begin selling its share of GM until after the automaker releases its second-quarter financial results in August.
In order for the Treasury to break even on the deal, it will need to sell its holdings for $53 per share which one senior official with the department said is unlikely.
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