Treasury's GM sell-off bigger than expected

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Treasury's GM sell-off bigger than expected

David Shepardson / Detroit News Washington Bureau

Washington — When the U.S. government became the majority owner of General Motors Co., President Barack Obama gave his auto team two missions: Get the government out of the auto business quickly and repay taxpayers as much money as possible.

But the goals conflict: Selling fast risks higher losses on the investment and waiting means longer government ownership of GM.

"In short, our goal is to get GM back on its feet, take a hands-off approach and get out quickly," Obama said in a White House speech on June 1, 2009, hours after GM filed for bankruptcy.

In the end, the Obama administration opted to sell 45 percent of the government's majority stake in GM, far more than previously expected, through the automaker's initial public stock offering today.

In recent days, Treasury Secretary Timothy Geithner boosted the number of shares the government would sell to as many as 412 million, from 303 million. On Tuesday, Obama was briefed on the decision by his economic team, according to two officials familiar with the matter.

The government's decision is a victory for GM officials who pressed for a speedy exit by Treasury. In April, Geithner met with GM Chairman and then-CEO Edward Whitacre Jr., who urged the government to sell its entire stake at once.

At a selling price of $33 per common share, announced Wednesday, the Treasury will raise almost $3 billion more than originally expected — up to $13.6 billion, compared with $10.7 billion had the IPO come in at the low end of the initial $26 to $29 price range. By year's end, the government will have recovered about $23 billion of its $49.5 billion GM bailout.

The upside of Treasury's decision to sell more shares is that it will shrink the government's stake to 33 percent from 61 percent. The IPO generated such strong demand that the government might not get another opportunity to sell so much stock at once again.

The down side is the government will take a loss of about a $4.4 billion on this first sale of stock; the break-even price was $43.67. While taxpayers could still be made whole, it is unlikely. The government would have to sell the remainder of its 500 million shares for about $52.80, a gain of 60 percent from the $33 launch price.

The United Auto Workers health care trust fund and the Canadian and Ontario governments, which own 11.7 percent of GM, were more cautious.

Canada agreed to sell 35 million shares in the IPO but, unlike the U.S. Treasury and the UAW, didn't boost that figure amid strong demand for the stock. It is holding out for more money.

Still, Treasury avoids some risks by not holding back more stock, especially unknown circumstances that could send the share price plummeting.

The Treasury also faced the prospect of more competition during future stock sales from other sellers, such as GM's former bondholders, who could reduce demand and lower share prices.

"GM's initial public offering is an important step in the turnaround of the company and for our work to recover taxpayer dollars and exit this investment as soon as practicable," Geithner said Wednesday.

Rep. Gary Peters, D-Bloomfield Township, said the government's bigger sale would send a message.

"The ultimate goal is for taxpayers to be made whole," Peters said, "but also it makes sense to get as much as taxpayer money back as soon as possible."

From The Detroit News: http://detnews.com/article/20101118/AUTO01/11180383/Treasury’s-GM-sell-off-bigger-than-expected#ixzz15e5K0yBY