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Treasury Said to Decide Against GM Stock Sale Before August as Shares Fall

May 12, 2011
4 min to read


The U.S. Treasury Department has opted to hold off on selling more shares in General Motors Co. until after July as it waits for the stock to climb, said two people familiar with the decision.


The Treasury, which owns 33 percent of GM, can file as soon as May 22 for a secondary offering. Such a process requires a lengthy review by the Securities and Exchange Commission, so the department will wait until it can use an S-3 filing as soon as July 1 that allows for shares to be sold more quickly, said the people, who asked not to be identified revealing private plans, reported Bloomberg.

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Treasury officials decided to wait because the stock has traded below the $33 per-share initial public offering price. While the company beat earnings expectations on May 5, the stock fell 3.1 percent that day. The lower stock price affirmed Treasury’s decision that it would be better to wait until the second-quarter profit is announced, the people said.


“The longer they wait, the better the return for the Treasury will be and for the taxpayer,” said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. “The auto market in the U.S. is recovering, and it’s a fairly consistent recovery. For every quarter delay in Treasury selling back shares, GM will be in a better financial position.”


GM fell 18 cents to $31.12 at 11:00 a.m. in New York Stock Exchange composite trading.


GM management and the Obama administration want to end the nearly two-year period of government ownership, the people said. The Treasury Department doesn’t expect to get the $44 average share price needed to break even on the $49.5 billion investment, they said. Further share sales need to average $53 a share to make up for the $33 per-share IPO price.


The Treasury provided $85 billion of commitments to the auto industry, which included $64 billion to GM and Chrysler Group LLC, according to the Congressional Budget Office. The remaining assistance was provided to finance arms GMAC Inc. and Chrysler Financial Corp. and auto-parts suppliers. GMAC is now known as Ally Financial Inc.

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“We’re going to lose money in the auto industry on net, but we did this for the jobs we were going to save, not to maximize return,” Treasury Secretary Timothy F. Geithner said at a Detroit Economic Club event on April 28. “We’re not a private investor. Our job was to protect the country.”


Treasury aims to get at least the $33 IPO price and perhaps sell shares in the high $30s or into the $40 range, where most analysts have set their target price, the people said. It also wants to begin selling shares this year, they said.


The Treasury can file an S-3 as soon as July 1, allowing the department to sell whenever the market bears the best price, the people said.


Treasury would then wait for GM to announce a second- quarter profit, meaning the U.S. could sell in the August to September time frame or wait until November, after third-quarter results are known, the people said.


Government ownership is weighing down GM shares, said David Whiston, an analyst with Chicago-based investment-research firm Morningstar Inc.

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“A portfolio manager who believes the GM story may stay on the sidelines because when Treasury files to sell, the stock could sink,” he said in a telephone interview. “Other investors don’t want to invest simply because there is government ownership.”


A JPMorgan Chase & Co. analyst, Himanshu Patel, wrote a research report on May 6 suggesting that GM use its cash reserves to buy back shares from the U.S. The Treasury doesn’t plan to do that, the people said.


The administration would take too much criticism if it sold shares to GM at a loss, so officials would rather sell the shares in the open market, the people said.


“What Treasury does with their GM shares is entirely up to them,” said Jim Cain, a GM spokesman. “We’re focused on growing profitably around the world, further strengthening our balance sheet and fully funding our pension plan.”


The New York Times reported earlier that the share sale would be delayed.

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