Automaker General Motors Co. (GM: Quote) said Wednesday it will buyback 200 million shares of its common stock held by the U.S. Department of the Treasury at $27.50 per share for a total consideration of $5.5 billion. The share buyback is expected to close by the end of the year.
The move is part of treasury plan to exit its entire stake in the automaker within 12 to 15 months, subject to market conditions. It is also part of the treasury's continuing efforts to wind down its investments in the Troubled Asset Relief Program (TARP) to protect taxpayer interests.
"This announcement is an important step in bringing closure to the successful auto industry rescue, it further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM's progress and our future," GM Chairman and CEO Dan Akerson said in a statement.
The buyback price represents a 7.9 percent premium over GM's closing share price of $25.49 on Tuesday. Following the current sale, the treasury will continue to hold the remaining 19 percent stake or 300.1 million shares of GM common stock.
The treasury said it intends to sell the remaining stake through various means in an orderly fashion, starting as early as January 2013 under a pre-arranged written trading plan.
Following the buyback, the Treasury has agreed to relinquish certain governance rights that were included in the U.S. Treasury Secured Credit Agreement with GM.
Further, Detroit, Michigan-based GM said it anticipates taking a charge of about $400 million in the fourth quarter related to the share buyback. It also expects the transaction to be accretive to earnings per share, as GM's total shares outstanding will be reduced by about 11 percent.
"We come to work every day grateful that taxpayers from the US and Canada stepped forward to rescue our industry, and determined to show this extraordinary help was worth it," Akerson added.
The Treasury revived the ailing automaker with a total investment of $49.5 billion in 2008 and 2009 to help stabilize and restructure the company as part of a broader rescue of the American automotive industry during a severe economic crisis.
"The auto industry rescue helped save more than a million jobs during a severe economic crisis, but 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," said the Treasury's Assistant Secretary for Financial Stability Timothy Massad.
Including the current sale of GM shares, the Treasury has recovered more than $28.7 billion of its investment in GM to date through repayments, sales of stock, dividends, interest, and other income.
The treasury had in November 2010 slashed its holdings in GM to about 26 percent from the initial 61 percent stake through the GM initial public offering. It sold 370 million shares through the IPO.
The Treasury has also recovered more than 90 percent or $381 billion of the $418 billion in funds disbursed under the TARP to date, through repayments and other income.
The Treasury had earlier in the week announced that it expected to make significant additional progress winding down TARP's bank programs in 2013. Last week, Treasury sold its remaining shares in American International Group, Inc. (AIG) to exit the insurer, which was the biggest recipient of bailout funds of $182 billion from the Treasury and the Federal Reserve.
In Wednesday's regular trading session, GM is currently trading at $27.18, up $1.69 or 6.65% on a volume of 16.88 million shares after hitting a 52-week high of $27.74 in early deals.
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by RTT Staff Writer
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