Analysts, investors, others react to GM’s move to purchase shares held by U.S.

Analysts, investors, others react to GM’s move to purchase shares held by U.S.
Staff reports
Automotive News | December 19, 2012 – 11:42 am EST
UPDATED: 12/19/12 3:01 p.m. ET – adds more comments
GM said it will buy back 200 million of its shares from the U.S. Treasury and the government plans to sell its remaining stake within 15 months, all but assuring a multibillion dollar loss. Analysts, investors and others react to the move:

“We applaud GM management for unlocking shareholder value by releasing excess capital and beginning a resolution of the government stake overhang.”

— David Einhorn, head of hedge fund Greenlight Capital Inc., which owns 21.6 million GM shares

“We will not have a fire sale, we will not sell the shares without getting the best value we can for Canadian taxpayers. We are a Conservative government, we are not interested in the long term in being shareholders in private corporations.”

— Canadian Finance Minister Jim Flaherty, indicating the government hasn’t decided when it will sell its GM shares.

“In the medium term, the removal of certain U.S. government restrictions on GM will provide the company with additional flexibility in operating its business and eliminate some of the administrative requirements that it has had to perform as a recipient of financial assistance from the U.S. Treasury. Over time, Fitch also expects the decline of the U.S. Treasury’s ownership stake to lessen the stigma associated with GM’s government-supported bankruptcy that has hung over the company and kept some potential customers from considering GM brands. Fitch expects GM to continue with its strategy of keeping a relatively low level of automotive debt on its balance sheet while maintaining a strong liquidity position, which will provide the company with substantial financial flexibility in the event of another industry downturn. Despite its strengthened financial position, GM also continues to face a number of challenges. The company’s margins, particularly in North America, remain below those of its strongest competitors, and it continues to work on improving the efficiency of its manufacturing and product development processes. In addition, GM’s European business continues to generate substantial losses, and weak market conditions and substantial restructuring actions are likely to weigh on the company’s financial performance in the region for several more years. The underfunded status of GM’s pension plans also remains relatively high, even after the planned defeasing of its U.S. salaried retiree obligations.”

— Fitch Ratings

“Treasury’s exit will improve consumers’ perception of GM and afford the company greater financial flexibility.”

— S&P Capital analyst Efraim Levy

“GM remains a top idea into 2013: We expect price and mix benefits associated with GM’s new full-size pickups and SUVs to accelerate earnings growth in 2H13 and 1H14, well more than offsetting any reasonably foreseeable downside risk associated with Europe … GM appears to have received partial relief of Troubled Asset Relief Program restrictions, such as on the percentage of vehicles that must be assembled within the United States, corporate jet travel, etc., although not yet on executive compensation, which continues to partly inhibit attracting outside talent, in our view.”

— J.P. Morgan analyst Ryan Brinkman

“This plan strikes the proper balance between maximizing return for the taxpayer and limiting government involvement in a private enterprise. Both GM and the Obama administration have been eager to bring the government’s role to a close in a responsible and orderly way, and this plan meets those goals … It’s important to keep in mind what the federal investment in GM and Chrysler sought to accomplish. It was about protecting more than 1 million workers whose jobs could have been lost, protecting families and communities that would have been devastated if the domestic auto industry had collapsed, preventing the massive cost the federal government would have had to bear in terms of unemployment insurance and other expenses, and avoiding the very real prospect of a second Great Depression. By any reasonable measure, this investment has been a tremendous success for GM and Chrysler and for America.”

— U.S. Senator Carl Levin, D-Mich.

Akerson: “Our results show that we are changing the company so we never go down that path again.”
“As today’s news travels around the world, the question will be asked, ‘Did GM truly learn the lessons of the bankruptcy? Our results show that we are changing the company so we never go down that path again.”

— GM CEO Dan Akerson in a memo to employees today.

“As a rule, we tend to be highly agnostic (if not cynical) on share buybacks in the auto industry. However, if any buyback could be described as fundamentally important (if not transformational) this is the one. GM has a clear path to shake the ‘Government Motors’ moniker once and for all. While impossible to quantify, we believe there is a genuine improvement in the commercial value for GM’s products that can crystallize over time following an ownership change. While certain governance limits will be relinquished, TARP compensation limitations will remain in place until the U.S. Treasury stake is completely eliminated.”

— Morgan Stanley analyst Adam Jonas

“The buyback happened earlier than we expected; the share price was lower than we anticipated; we were expecting something at least $30; and the structure was different that we thought it would be. Our understanding was that so-called “greenmail rules” make it tricky legally for a publicly-traded company to repurchase shares directly from a control shareholder, particularly at a price above market. As a result, we thought that GM might tender for a set number of shares, and that the government would announce at the same time that it would tender into the deal. This would have allowed public shareholders to sell at the same price as the control shareholder. However, as we have seen in various aspects of the financial crisis and its aftereffects, there sometimes appears to be carve-out for government actions.”

— Jefferies & Co. analyst Peter Nesvold

“With the strong liquidity and cash balance, GM still has balance sheet flexibility, which it can use toward pension, Europe restructuring, acquisitions, or potentially on further buybacks. GM has been ineligible for addition to the S&P 500 up until now due to the fact that it is just short of the required minimum 50% float. Post the first sale of stock by the treasury, GM is likely to have the minimum float required to meet S&P eligibility. At that point, we would assume GM to be a leading candidate to be included in the index whenever an opportunity for inclusion arises.”

— Barclays analyst Brian A. Johnson


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