General Motors Co. announced that it is ready to buy $2.1 billion of preferred stock held by the US Department of Treasury when its public offering has been completed. GM is making this move to finally be able to repay $49.5 billion in federal bailout funds.
GM gave an outline of its actions that include a new set of contributions to US pension plans and repayment of $2.8 billion outstanding on a note given to the UAW Retiree Medical Benefits Trust.
Previously, GM repaid $6.7 billion in outstanding government loans, and slightly more than $700 million in dividends and interest. After the government's $2.1 billion preferred shares are purchased, GM will have repaid $9.5 billion to the federal government.
Rebecca Lindland, an analyst at IHS Automotive in Lexington, Mass., told Bloomberg News that GM is attempting to “clean up” its balance sheet in time for the IPO. According to GM, the purchase of the preferred stock held by Treasury will be at a price equal to 102% of the $2.1 billion liquidation amount.
Because of this, the company will post a $700 million charge (attributable to common stockholders) for the difference between the purchase price and the recorded value of the Treasury's preferred shares.
In addition, GM will record a $200 million non-cash gain in the fourth quarter of 2010 linked to the retirement of the UAW Retiree Medical Benefits Trust debt.
GM also intends to make a contribution of at least $4 billion in cash and $2 billion in GM common stock to its US hourly and salaried pension plans after the completion of its initial public offering expected next month. [via autonews - sub. required]