GM facing $16 billion question as U.S. Treasury prepares to slash its stake in the automaker

Article by Christian Andrei, on May 15, 2011

General Motors Co. will soon enter another chapter that’s expected to result to the U.S. government cutting a significant portion of its stake in the carmaker. Last fall, GM returned to the stock market. It has been six months since GM had its $23.1 billion initial public offering.

There have been speculations from investors that after the lock-up period for major shareholders to sell their shares expires on May 22, the U.S. Treasury would be immediately moving to sell a big portion of its 32% stake.

But only GM shareholders and potential investors would know the date and the approach that the Treasury will take to exit its stake.

It’s a $16 billion issue that many want to be resolved before they take on GM’s shares, which are presently trading below the IPO price. One possibility would be that GM will use some of its cash to buy back a fraction of the shares directly from the Treasury. At the end of the first quarter, GM had $36.5 billion in liquidity.

A source said that the U.S. government has yet to meet with the GM to talk about the details of its plan and the possibility of a share buyback or the timing and size of a secondary offering.

A separate source said that GM will buy shares directly from the Treasury as it has a “higher level of cash on hand” than what it requires to operate the business.

The source added that this is positive for the remaining shares that the Treasury aims to sell. He referred to this as a “good, simple solution” compared to a plan for GM executives to pressure the stock in some other way.

Topics: gm

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