The U.S. Treasury Department announced plans to sell additional shares of General Motors Co. (GM) common stock on the eve of the automaker returning to the Standard & Poor’s 500 Index after a four-year absence.
The government said it will sell 30 million more shares of GM common stock in a 50-million-share offering that also includes a sale by the UAW union’s GM retiree health-care trust.
Revisions in the S&P 500 may prompt money managers to shift holdings to match the index. That could be a boost for Detroit-based GM, which under Chief Executive Officer Dan Akerson, has seen its shares this year surge past its November 2010 initial public offering price for the first time in two years.
“There’s definitely real buying that needs to take place,” Joseph Spak, an analyst with RBC Capital Markets, said today in an interview. For the government, “there’s a sort of a natural buyer for them to offload some shares.”
The U.S. said in December that it would sell its remaining GM stake in 12 to 15 months. Treasury didn’t revise that timing today.
GM replaces H.J. Heinz Co., which will be purchased by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) and other investors, in the S&P 500 at the close of trading tomorrow. Berkshire Hathaway is also an investor in GM, which had been in the S&P 500 since the index was established in 1957 until its 2009 bankruptcy. About $5.58 trillion is benchmarked to the gauge, according to S&P’s website.
“The stock is doing well right now, so this is opportune,” said Michelle Krebs, an analyst with automotive researcher Edmunds.com, who is based in Royal Oak, Michigan. “Getting back into the S&P 500 is an important milestone. But the real celebration is the day the government is totally out of the business.”
GM fell 2.7 percent to $34.02 at the close in New York. The shares have gained 18 percent this year, eclipsing its $33 IPO price, compared with a 13 percent increase for the S&P 500.
“We appreciate the opportunity to assist in this offering made possible by our rejoining the S&P 500,” GM Chief Financial Officer Dan Ammann said in a statement. “Our focus remains on continuing the progress we are making in the marketplace.”
The U.S. invested $49.5 billion in GM, the biggest piece of an industry bailout that became a centerpiece in the first term of President Barack Obama. Critics of the bailout labeled GM “Government Motors.”
“GM is always going to be tainted with, ‘They took the money,’” Krebs said. “I’m not convinced it’s going to make a lot of difference in the minds of car-buying consumers.”
The U.S. owned 241.7 million shares in GM, or 16.4 percent, as of April 1, according to the automaker’s proxy statement.
The government’s sale of additional GM shares also opens the door for GM to restore its dividend, RBC’s Spak wrote in a note to investors today.
“The accelerated sell-down by the government should be viewed positively,” the New York-based Spak wrote. The government could exit GM “by the end of the year. This could open the door for additional capital actions, including a potential dividend.”
The retiree health-care trust, created following contract negotiations in 2007 between GM and the Detroit-based United Auto Workers union, is selling 20 million shares. The trust, which pays medical bills for union retirees, is the No. 2 shareholder behind the U.S. with 160.2 million shares, according to data compiled by Bloomberg.
Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley are acting as the joint book-running managers of the proposed offering, the Treasury said.
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