How the Treasury, GM stock deal got done

December 19, 2012
How the Treasury, GM stock deal got done
By DAVID SHEPARDSON / Detroit News Washington Bureau
Washington — After nearly 3½ years of government ownership, a final deal for General Motors Co. to help the U.S. Treasury exit took only a matter of days.

GM officials approached Treasury earlier this month with a new offer to buy back 200 million shares, two people briefed on the talks said.

After negotiations, the sides agreed on $27.50 a share, or $5.5 billion, a 7.9 percent premium over Tuesday’s close — and a higher premium over GM’s recent average stock price.

Treasury officials weren’t willing to sell shares to GM at the market prices.

But Treasury Secretary Tim Geithner has long wanted to exit GM soon, wanting to get out of the business of owning a large stake in an automaker.

Before the November election, the Obama administration had showed no interest in disposing of its 26.5 percent stake in GM — or 500 million shares — it had acquired in 2009 as part of GM’s bankruptcy restructuring.

Republican presidential candidate Mitt Romney had seized on the fact that the government forecasts it will lose $24 billion on the $85 billion auto bailout — and suggested that Treasury was delaying a sale out of political calculations.

The sale is a benefit to taxpayers, officials say, because if the Treasury had gone out on the open market to start selling its remaining 500 million shares, it could have depressed the stock price. But as a result of announcing the deal, GM’s stock price jumped nearly 7 percent Wednesday in early trading.

In January, Treasury will announce a stock sales plan, expected to be a series of small sales of GM stock.

GM chief financial officer Dan Ammann declined to say when the talks began but said the deal was reached “through a series of negotiations and discussions.” He noted they have talked about various issues throughout the year.

He noted the Treasury last week exited its equity stake in AIG as part of its bailout and is working to end the $700 billion 2008 bailout fund that rescued automakers, banks and AIG known as the Troubled Asset Relief Fund.

“The general sense you get from them is they are bringing to closure the overall TARP program,” Ammann said.

Taxpayers will likely lose billions on the$49.5 billion bailout — or $13 billion at today’s stock prices. Unlike the 1980 Chrysler bailout, the Obama administration didn’t insist GM repay all of its government bailout — and instead swapped about $42 billion for a 61 percent equity stake in GM.

The government sold most of its stake in the November 2010 IPO in GM. Along with the loans repaid and the new sale, taxpayers will have recouped $28.7 billion so far in the GM bailout.

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