General Motors S&P 500 Inclusion Marks Another Step in Recovery
General Motors Co. (GM), four years after being kicked out of the Standard & Poor’s 500 Index, will heal another wound of the financial crisis when it rejoins the benchmark gauge for American equities this week.
The largest U.S. automaker is replacing H.J. Heinz Co., which will be purchased by Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital in a $23 billion buyout, according to a statement yesterday by S&P Dow Jones Indices LLC. GM, which had been in the S&P 500 since the index was established in 1957 until its 2009 bankruptcy, will be added to the gauge on June 6 and would be the 79th biggest company based on yesterday’s closing market values.
“They’re in essence getting a vote of confidence from S&P,” Daniel Genter, who oversees about $4 billion as president of Los Angeles-based RNC Genter Capital Management, said in a phone interview. “S&P expects that GM is going to have significant longevity and growth, for which reason it should be added back into the business mix of America.”
GM’s return to the S&P 500 is a milestone for the company since emerging from a 2009 reorganization and $49.5 billion U.S. government bailout that became a centerpiece of President Barack Obama’s first term. Optimism about GM is growing as the U.S. Treasury sells down its stake and the stock topped the $33 a share initial public offering price on May 17 for the first time in two years.
Shares of the Detroit-based company rose 2.8 percent to $35.53 as of 7:59 p.m. in New York in trading after the close of U.S. exchanges yesterday. GM is up 19 percent in 2013, compared with a 15 percent advance for the S&P 500.
GM returned to the stock market in November 2010 with an initial public offering that raised $15.8 billion, before expanding to $18.1 billion when underwriters exercised the over-allotment option. The revisions in the S&P 500 (SPX) may prompt money managers to shift holdings to match the index. About $5.58 trillion is benchmarked to the gauge, according to S&P’s website.
The Treasury said in December that it plans to sell its entire GM holding within 15 months after the automaker bought $5.5 billion of its stock, or 200 million shares, from the government. As of April 1, the Treasury held 241.6 million GM shares, representing a 16.4 percent stake, according to GM’s proxy statement.
GM’s free float has increased to at least 56.2 percent this year from 44.5 percent at the beginning of 2012, data compiled Bloomberg show. A minimum free float — the percentage of shares available to the public — of 50 percent is required for companies to be considered for addition to the S&P 500, according to criteria published on the website of S&P Dow Jones Indices, a joint venture of McGraw-Hill Cos. and CME Group Inc.
“The GM team has been working very hard to earn the business of customers around the world and to win the confidence of investors, and rejoining the S&P 500 shows we’re very much on track,” Chief Executive Officer Dan Akerson said in an e-mail.
GM and Citigroup Inc. were removed from the Dow Jones Industrial Average and replaced by Cisco Systems Inc. and Travelers Cos. on June 1, 2009. GM filed for bankruptcy protection that day and Citigroup was recipient of $45 billion in taxpayer aid.
The automaker has been profitable (GM) every quarter since its IPO in November 2010. GM is being helped by plans to introduce about 20 new vehicles in the U.S. this year, including Chevrolet Silverado and GMC Sierra pickups, as it seeks to rebound from an 88-year-low market share in 2012.
The company’s new Cadillac ATS, introduced last year, is already boosting sales, with the luxury brand’s deliveries increasing 38 percent to 69,750 through May. That was the brand’s biggest year-to-date increase since 1976, when sales jumped 45 percent to 135,258.
“S&P is allowing them back in as a salute to the significant actions they’ve taken,” Michael Shinnick, a fund manager at Salt Lake City-based Wasatch Advisors Inc., said in a phone interview yesterday. His firm manages $16 billion and owns GM shares. “The company didn’t just get profitable for a quarter or a year. They’ve demonstrated now multiple years of steady profitability.”
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