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Government to Sell Off GM Stake; GM to Buy Back $5.5 Billion

By Rich Smith – Dec 19, 2012 at 11:01AM

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Beginning of the end announced today with GM's 200 million-share buyback.

The Department of the Treasury announced the official end of "Government Motors" today.

The Department confirmed that over the next 12 to 15 months, and "subject to market conditions," it intends to fully liquidate its stake of 500.1 million common shares in General Motors (NYSE: GM). The first step in the process is for GM to buy back 200 million of these shares at a purchase price of $27.50 per share in a transaction expected to close by the end of 2012. That works out to $5.5 billion and a 7.9% premium over the shares' closing price on Dec. 18.

In association with this share buyback, GM expects to take a charge of approximately $400 million in the fourth quarter, which will be treated as a special item. GM expects the purchase to be accretive to earnings per share, as total shares outstanding on a fully diluted basis will be reduced by some 11%.

The Treasury will sell off the remaining 300.1 million shares more gradually, beginning the selling next month, and taking as long as until April 2014 to complete the process. In a statement, the Treasury noted that it has already sold its last batch of shares in insurer AIG (NYSE: AIG), and that "overall, to date, through repayments and other income, Treasury has recovered more than 90 percent ($381 billion) of the $418 billion in funds disbursed for TARP."

According to the government, in 2008 and 2009, Treasury invested a total of $49.5 billion to help "stabilize and restructure" GM. "Including GM's purchase of common stock from Treasury announced today, Treasury has recovered more than $28.7 billion of its investment in GM to date through repayments, sales of stock, dividends, interest, and other income," the government said in its press release.

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Fool contributor Rich Smith has no positions in the stocks mentioned above. The Motley Fool owns shares of American International Group and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend American International Group and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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