General Motors announced on Wednesday that it will buy back approximately 200 million shares of its common stock from the U.S. Treasury Department, leaving the feds with about a 19 percent stake in the company.
“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,” Dan Akerson, chairman and CEO of GM, said in a statement.
Dan Ammann, senior vice president and CFO added, “A fortress balance sheet has been a pillar of GM’s financial strategy and has enabled us to undertake today’s actions. GM’s balance sheet will remain very strong, with estimated liquidity of approximately $38 billion at the end of 2012, following the closing of the share buyback.”
GM and the Treasury Department agreed to a $27.50 per-share buyback, a total of about $5.5 billion.
The Treasury Department also announced on Wednesday that it plans to divest itself entirely of the automaker in the next 12 to 15 months.
“Today, as part of its continuing efforts to wind down its investments in the Troubled Asset Relief Program (TARP), the U.S. Department of the Treasury announced its intent to fully exit its investment in General Motors (GM) within the next 12-15 months, subject to market conditions,” the agency said in a statement.
Treasury will sell the 200 million shares of stock back to GM by the end of the year and plans to get rid of the remaining 300.1 million through “various means in an orderly fashion.”
“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 Assistant Secretary for Financial Stability Timothy G. Massad.
“Moving to exit our investment in GM within the next 12 to 15 months is consistent with our dual goals of winding down TARP as soon as practicable and protecting taxpayer interests,” he adds.
Treasury invested approximately $49.5 billion in bailing out GM. To date, the federal agency has recovered about $28.7 billion of that cash via repayments, sales of stock, dividends, interest, and other income.
At $27.50 a share, GM is buying back its stock at about an eight percent premium over the going price. However, most reports put the “break even” point for Treasury at about $50 a share. Selling 200 million shares at nearly half that price means Treasury will have to figure out a way to offload the other 300.1 million at well above market value -- or post a multibillion dollar loss on the GM bailout.
Follow Becket Adams (@BecketAdams) on Twitter
Featured image courtesy Getty Images.