Saturday, December 22, 2012

Taxpayers Take a Hit as Uncle Sam Prepares to Unload General Motors Shares.

Worth the paper it's printed on?
General Motors [NYSE: GM] announced earlier this week that it was purchasing back some 200 shares of their stock from the United States government. Although the deal is worth an estimated $5 billion, taxpayers are going to end up taking a loss on the auto bailout from nearly four yearsago that also saw Chrysler end up in an arranged marriage with Italian automaker Fiat.
The government got its shares as part of a $49.5 billion bailout of GM that began nearly four years ago. It saved GM from collapsing into financial ruin.

GM said it will pay $27.50 each for the 200 million shares, and it expects to close the deal by the end of the year. GM stock closed Tuesday at $25.49, and it shot up 7.1 percent in premarket trading Wednesday to $27.30.

However, the 'break even' price is said to be near $53 per share, meaning that the shares of General Motors would have to nearly double in order for the government to recoup their losses from General Motor's post-bailout IPO. As part of the initial terms of the bailout, Uncle Sam initially owned more than 60% of GM. General Motor officals said that part of the reason for the stock buyback from the Feds was to rid themselves of th 'Government Motors' stigma.

Canada and the province of Ontario also became stakeholders in GM during the 2009 bailout and officials announced they had no plans to divest their shares of GM in the short-term.

"We've always been clear about two things. One, that we will not have a fire sale - we will not sell the shares without getting the best value we can for Canadian taxpayers - and secondly, that we are a Conservative government. We are not interested in the long term in being shareholders in private corporations," [Finance Minister] Flaherty told reporters in Burlington, Ontario.

"Over time we do intend to divest. On the timing, I'll have to get back to
Canada's federal government and the province of Ontario became shareholders of GM in 2009, when they contributed a combined C$10.8 billion ($10.89 billion) to a bailout to keep GM afloat. The U.S. government provided about US$50 billion.
Canada and Ontario's combined stake in General Motors is about 9%.

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