Updated December 19, 2012, 12:10 p.m. ET

GM to Buy Back Stock From Treasury

By JEFF BENNETT And JEFFREY SPARSHOTT

DETROIT—General Motors Co. GM +7.92%took another step to escape the shadow of its bankruptcy and government bailout following the financial meltdown, announcing Wednesday that it would spend $5.5 billion to buy a big chunk of its stock held by the U.S. Treasury.

The auto maker will buy 200 million shares, or about 40% of the government's GM stake, in a deal that is expected to close by the end of this year. The repurchase price of $27.50 a share represents a 7.9% premium over the closing price on Tuesday. The purchase would reduce the Treasury's stake in GM to 19% from 26.5%.


General Motors said it will purchase 200 million shares of stock held by the U.S. Treasury Department in the first step of the government's eventual exit from the auto maker within the next 12 to 15 months. Jeff Bennett reports on Markets Hub. Photo: GM.

"We felt this transaction is attractive to the company, good for business and good for selling more cars," GM finance chief Dan Ammann said Wednesday. "It moves us forward and eliminates a significant overhang on the stock that has weighed down the shares."

News of the purchase pushed GM shares up in early trading.

Easing the Treasury's hold in GM has been a significant challenge for the auto maker, which is attempting to revive its image with Americans following its bankruptcy and federal bailout in 2009. GM was branded with the nickname "Government Motors" and its status remains a sore spot for many tax payers who felt their money shouldn't have been used for a bailout.

"We have some market research that has suggested the government involvement in the business has some impact on sales, therefore as we move past this stage we expect that to be a benefit," Mr. Ammann said.

As soon as January, Treasury will begin selling its remaining 300.1 million shares through "various means in an orderly fashion," the company said. Mr. Ammann said GM has no intentions at this point to purchase more shares.

"Moving to exit our investment in GM within the next 12 to 15 months is consistent with our dual goals of winding down [the Troubled Asset Relief Program] as soon as practicable and protecting taxpayer interests," said Treasury official Timothy Massad, who is assistant secretary for financial stability.

Once GM's buyback is complete, the Treasury will have recovered about $28.7 billion of the $50 billion it invested in GM. Based on current share prices, it is unlikely to recover its full investment after it sells the rest of its shares.

The Treasury has been reluctant to sell its 500 million GM shares since November 2010 when the auto maker's initial public offering priced the stock at $33. It needed the stock to hit $52.39 a share for it to break even. Now it must sell its remaining shares at $69.72 to break even mark.

Mr. Ammann declined to comment on why the Treasury decided to make the move now other than it was a result of ongoing discussions. GM had approached the Treasury earlier this year with a plan to repurchase some of its stock but no action was taken, according to people who knew of the overture.

The Obama administration has been winding down financial-crisis era programs—with mixed financial results. Just this month, it sold the last of its common shares in American International Group Inc., AIG +0.14%the biggest recipient of bailout funds via Treasury and the Federal Reserve. By Treasury's calculation, the final round of AIG sales means the government will have a net positive return of $22.7 billion.

The government also still holds stakes in 218 banks under another TARP program, down from a peak of 707. On Tuesday officials said they would auction off government holdings in about two-thirds of the remaining institutions next year, likely at a small loss on the initial investment.

GM's repurchase will be accretive to earnings per share by reducing the auto maker's total shares outstanding by about 11%. GM expects to take a charge of approximately $400 million in the fourth quarter, which will be treated as a special item.

Mr. Ammann, however, said GM's balance sheet remains strong and will finish the year with an estimated liquidity of about $38 billion.

As part of the deal, the Treasury has immediately waived some limitations on the auto maker such as use of private aircraft to transport executives. Mr. Ammann declined to say when or if GM will move to lease or purchase private aircraft. The inability to use private aircraft has been a sticking point with many GM executives. Pay limits on the auto maker's senior level executives will continue.

Write to Jeff Bennett at jeff.bennett@dowjones.com

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