Despite some happy talk a few years ago about having paid back the U.S. Treasury, General Motors Co. has remained closely tethered to the federal government’s finance division since selling 500 million shares, or 26 percent of the company, to it two years ago. Happy talk returned again this week when the company announced it is repatriating 200 million of those shares at an 8 percent premium to current market value, or $27.50. That is a real bargain — for GM, that is — as the price amounts to a little more than half of Treasury’s cost basis at which it purchased them two years ago.
In a Wall Street Journal article on the repurchase, GM management suggests its motivation was its business and reputation. It seems that sales have suffered in recent years because many people have refused to buy their cars because they remain irritated about the bailout of the company that began in late 2008. Buying these shares from the government, company executives say, will help the company “move past this stage” in its history. “It moves us forward and eliminates a significant overhang that has weighed down the shares,” the Journal quoted GM finance chief Dan Ammann as saying.
Maybe. More likely, though, it is that Mr. Ammann’s optimism is misplaced. Indeed, when taxpayers realize that the buyback means the Treasury will receive $5 billion less for the shares than they paid just two years ago, it is a safe bet the “overhang” will hang around for a good while longer.
Worse, there remains the prospect of the Treasury selling its remaining shares at some point in the future. Estimates following this week’s buyback are that the Treasury will have to net $69.72 to break even on its original investment. Right now the paper loss stands at $12.7 billion.
There is one possible solution: The something like 300 million U. S. citizens, which is pretty close to the number of GM shares Treasury will continue to hold. Rather than play private equity manager, Treasury might consider distributing those shares to its citizens.
Of course, some would immediately sell for whatever they could get for the shares, depressing the share price even further. Still, for a family of four, selling the shares at the current price could net around $100. That is enough to pay for a nice dinner or two.
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