GM sells $1 billion of perpetual preferred stock in Ally

Article by Christian Andrei, on March 23, 2011

As part of a plan to limit General Motors Co’s ties to former finance arm Ally Financial Inc. (the lender formerly known as GMAC Inc.), GM sold $1 billion of perpetual preferred stock in Ally.

A filing with the Securities and Exchange Commission revealed that Ally won’t receive any proceeds from the sale. GM was the owner of Ally up until 2006, when it sold a 51% stake to a group of investors led by Cerberus Capital Management LP for $7.4 billion.

Currently, U.S. taxpayers own 74% of Ally's common stock, a holding it took on when it was bailed out by the government during the financial crisis.

In a statement, Chris Liddell, GM vice chairman and CFO, said that the company is taking a further step in its strategy to “strengthen and simplify the company’s balance sheet.” GM said that the transaction will result in a book gain of $0.3 billion to appear in the first quarter of 2011.

After this sale, GM’s investment in Ally Financial will consist of a 9.9% interest in Ally common stock. Mirko Mikelic, a Grand Rapids, Michigan-based money manager at Fifth Third Asset Management, said that the sale is a continuation of the process of gradually stepping away from the government and GM.

He added that they aim to “continue to expand without oversight." Data compiled by Bloomberg indicate that the U.S. Treasury Department sold $2.67 billion of Ally's trust preferred securities on March 2. This offering was able to recover a portion of the $17.2 million that the government released to save the company starting in December 2008.

Press Release

GM sells its shares of Ally Financial

General Motors Company (NYSE: GM) today announced the sale of all of its shares of Fixed Rate Perpetual Preferred Stock, Series A, of Ally Financial Inc. in a registered public offering for a total of $1.0 billion.

The shares, which represent 100 percent of the Ally Series A preferred stock outstanding, have an aggregate liquidation preference of $1 billion.

"Today, we are taking another step forward in our strategy to strengthen and simplify the company's balance sheet," said Chris Liddell, vice chairman and chief financial officer.

The transaction will result in a book gain of $0.3 billion to be recorded in the first quarter of 2011. Following the sale, GM's investment in Ally Financial will consist of a 9.9 percent interest in Ally common stock.

The offering was underwritten by Credit Suisse, BofA Merrill Lynch, Deutsche Bank Securities and Barclays Capital. This news release shall not constitute an offer to sell or the solicitation of an offer to buy any security.

Topics: ally financial, gm

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