Over the next twelve to fifteen months, the White House has announced that it plans to sell the 300 million shares that it has remaining in General Motors. Of these 300 million shares, General Motors intends to buy back 200 million of them.
For each share that it buys back, GM will pay $27.50. This is a 7.9 percent increase from the closing price of $25.49 that was decided on December 18, 2012. With that said, it is also much less than the price that was set during the initial public offering back in November 2010 that was set at $33. What does this mean? It means that taxpayers are going to lose billions of dollars.
According to Dan Akerson, chairman and CEO of General Motors, the buy back of shares will help to clear customers minds of the perception that the government owns much of GM. It also demonstrates the confidence that GM has in their own products, as well as the success that they intend to reach in the future.
General Motors made a not that, during the fourth quarter, it will take a $400 million charge against earnings with the re-purchasing of their stocks.
Recently, CEO Dan Akerson told reporters of his excitement to have the government sell its stake in General Motors. With that said, he did not indicate that the sell was imminent. In fact, the announcement was not expected to be made until the beginning of the 2013 year.
There has been much pressure for treasury to announce its sale. GOP presidential candidate Mitt Romney called on the White House to sell its shares last summer. At that time, GM was only offering $18.72 per share. If the deal had been made, this would have left the government with much less than they are taking now - $1.5 billion less to be more specific.
How much would the government have to make in order to recoup the investment that it made in General Motors? In order to receive all of the money back that they put into GM, the government would have to sell each share for $53.
For quite a while, both GM and the government have been looking for a way to sell off the remaining stake in a fashion that would not cause disorderliness. Both sides were concerned that marketing 500 million shares would cause havoc and decrease the stock price at GM. To minimize disruption in the market, it is predicted that the remaining 300 million shares will not be sold all at once, but will rather be sold in chunks.
Another hope for the market is that shares in GM will continue to increase. And as both the economy and auto sales improve, this is a definite possibility. Having said that, GM is not without its worries. Most of these worries are related to problems in Europe, where the automaker reported a total loss of between $1.5 and $1.8 in 2012.
According to White House officials, the re-purchased stock will provide long term benefits to the coutnry. Let's hope this is true.
Read the Original Article at: http://www.nbcnews.com/business/gm-buys-back-stock-taxpayers-may-lose-billions-1C7659301
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