According to analysts, General Motors Co’s investors are focused on the possibility of stock buybacks or a dividend on common shares now that the U.S. government has outlined its plans to sell the rest of its stake in the No. 1 U.S. automaker by year-end.
The U.S. Treasury said it would exit its stake in GM by year-end, a move many on Wall Street had expected despite prior announcements that it would sell the rest of its shares by April 2014.
Analysts expect GM next year to buy the rest of its Series A preferred stock owned by the United Auto Workers healthcare trust and the Canadian government, and then return cash to shareholders through a buyback and dividend that will draw more interest from potential investors.
“The likely clean up of the Treasury stake by year end moves capital allocation to the forefront for 2014,” Barclays’ analyst Brian Johnson said in a research note.
“The priorities for cash reinvestment haven’t changed,” GM Chief Financial Officer Dan Ammann told analysts on the company’s earnings conference call late last month. “We’re obviously focused on reinvesting in the business, making sure we have a winning product portfolio going forward.”
Analysts said Treasury’s exit would remove the stigma of the nickname “Government Motors” that executives said have hurt GM sales slightly. It also will eliminate the compensation cap put in place after the $49.5 billion U.S. bailout in 2009, allowing GM to pay market rates to retain and attract top talent.
Barclay’s Johnson expects GM to buy back the Canadian government’s stake in GM next year, which would cause him to boost his earnings estimate by 3 to 4 %, and expect a dividend announcement in the first half of the year.