GM in talks to cut the government’s 33% stake in the company

Article by Christian A., on June 4, 2011

Talks are ongoing at General Motors Co. over a plan to buy shares from the U.S. Treasury Department to cut the government’s 33% stake in the company, according to three sources who declined to be named because these are internal discussions. The sources clarified that to date, no decisions have been reached on a share purchase plan.

They added that GM is considering the best uses for its cash, including supporting its underfunded pension plan, debt repayment, and financing new vehicle programs. GM spokesman Jim Cain said that the company has “clear, immediate priorities” when it comes to cash.

These include strengthening its balance sheet and completely funding its pensions. He added that GM aims to use cash to fund operations and then return any excess cash to its shareholders.

David Whiston, an analyst with Morningstar Inc. in Chicago, said that GM may utilize a portion of the $30.6 billion in cash and marketable securities it held at the end of the first quarter to cut the government’s stake and put to rest worries from investors that a share sale by the Treasury would adversely affect the share price. Whiston also said that due to government ownership, there is an overhang on the stock.

He believes that GM likely thinks that some of the overhang will be removed when it buys down the U.S. Treasury’s stake. Last Friday, GM dropped 48 cents, or 1.6%, to $29.12 on the New York Stock Exchange. Earlier, it fell by up to 2.4%. Since GM’s initial public offering in November, its shares have fallen by 12%.

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