The Treasury plans to sell its remaining stake in General Motors over the next 15 months, allowing the automaker to shed the stigma of being partly owned by the U.S. government.
GM said Wednesday it will spend $5.5 billion to buy back 200 million shares of its stock from the Treasury by the end of this year. The government, in turn, plans to sell its remaining stake of 300 million shares on the open market over the next 12 to 15 months.
GM will pay $27.50 for each share, about an 8 percent premium over Tuesday's closing price of $25.49. The shares shot up more than 8 percent in premarket trading to $27.57.
The deal almost certainly means that the government will lose billions on a $49.5 billion bailout that saved GM from being auctioned off in pieces during the financial crisis in 2008 and 2009. GM's buyback will cut the Treasury's stake to 19 percent from 26.5 percent. For it to break even, Treasury would have to sell the remaining 300 million shares for average of about $70.
For GM, getting the government out of its business removes a major business obstacle. GM Chief Financial Officer Dan Ammann told reporters that GM has market research showing that government ownership has held down sales of the company's cars and trucks.
"This is fundamentally good for the business," he said at a hastily called news conference Wednesday morning.
The government got its stake as part of the bailout of GM that began nearly four years ago.
The Treasury Department said in a statement that it would sell the remaining 19 percent stake "in an orderly fashion" within the next 12 to 15 months, subject to market conditions.
Treasury said it will have recovered more than $28.7 billion of its investment through repayments of loans, sales of stock, dividends, interest and other income after GM buys back the 200 million shares. But that leaves Treasury about $21 billion short of recouping its investment.