General Motors is spending $5.5 billion to buy back 200 million shares back from the U.S. Treasury by the end of the year. The Treasury is planning to sell their remaining stake in General Motors over the next 15 months. The government is planning to sell their remaining stake of 300 million shares on the open market in the next 12-15 months. GM is paying $27.50 per share, which is an 8% premium over the company’s closing price of $25.49.
The government will be losing quite a bit of money from the $49.5 billion auto bailout that saved GM during the financial crisis in 2008 and 2009. The automotive bailout help save millions of jobs for Americans though. GM’s buyback will cut the Treasury’s take to 19% from 26.5%. In order to break-even, the Treasury would need to sell their remaining 300 million shares at an average of around $70.
The Treasury said that they will have recovered over $28.7 billion if its investment through repayments of loans, sales of stock, dividends, interest, and other income after GM buys back the 200 million shares. However the Treasury would still be down $21 billion based on those numbers.
The bailouts that GM and Chrysler received were part of the $700 billion Trouble Asset Relief Program that was created by Congress during the financial crisis of 2008.
?The auto industry rescue helped save more than a million jobs during a severe economic crisis,? stated Timothy Massad, the Treasury?s assistant secretary for financial stability. ?The government should not be in the business of owning stakes in private companies for an indefinite period of time.?