US Treasury eyes GM share sale after lock-up expiry
The US government is considering a summer sale of its remaining stake in General Motors, but will wait for first-quarter earnings and the end of the IPO lock-up period before making a decision.
The US Treasury is preparing for a possible sale of its remaining shares in General Motors (GM) this summer, but will wait for GM’s first-quarter results and the expiry of the IPO lock-up period before making any final decision. The government, which provided a $50 billion bailout to GM in 2009, still holds around 500 million shares after reducing its stake in the November IPO.
US Treasury Prepares for GM Share Sale After Lock-Up Expiry
Background: The 2009 GM Bailout and IPO
In 2009, GM faced severe financial difficulties and entered bankruptcy protection. The US government intervened with a $50 billion rescue package, becoming the largest shareholder. As a result, the Treasury held a 61% stake in the automaker. In November 2010, GM returned to public markets with a $23.1 billion IPO, one of the largest in US history. This offering reduced the government’s stake to about 26.5%, but included a lock-up period that prevented the Treasury from selling additional shares until late May 2011.
| Date | Event |
|---|---|
| 2009 | US government provides $50 billion bailout, takes 61% stake |
| November 2010 | GM holds $23.1 billion IPO, government stake reduced to 26.5% |
| 22 May 2011 | IPO lock-up expires, allowing Treasury to sell more shares |
Timing and Conditions for the Share Sale
The Treasury is unable to sell its holdings before 22 May 2011, due to the lock-up agreement from the IPO. Only after this date can the government consider divesting more of its holding. According to sources familiar with the matter, the Treasury will also wait for GM’s first-quarter earnings report before making any decisions. No final decision has been made regarding the timing or size of the sale, and planning is said to be at an early stage. The Treasury has stated that it will consider all options, aiming to protect taxpayers’ interests while exiting as soon as practical.
- Treasury cannot sell GM shares before 22 May 2011 due to IPO lock-up
- First-quarter earnings will influence the timing of any sale
- No commitment yet to the number of shares or timing
- Treasury’s stated goals: protect taxpayers and exit as soon as practical
Share Price Pressure and Financial Implications
GM’s share price has become a significant factor in the government’s exit strategy. Shares have fallen below their $33 IPO price, closing at $29.97 on 18 April 2011, which is 9.2% below the IPO level. To avoid a loss for taxpayers on the $50 billion rescue, the Treasury would need to sell its remaining shares at $53 each, a price not seen since the IPO. At current market levels, any sale would likely result in a substantial loss for taxpayers.
| Required Price to Break Even | IPO Price (Nov 2010) | Share Price (18 Apr 2011) |
|---|---|---|
| $53.00 | $33.00 | $29.97 |
Estimates for a follow-on share sale have varied. Some sources suggest a sale could raise around $10 billion, but this depends on both the number of shares sold and the market price at the time. The uncertainty around GM’s share price adds complexity to the timing and scale of any government exit. The Treasury has emphasised that it will weigh both market conditions and taxpayer interests before proceeding with any sale.
Potential Outcomes for GM and Taxpayers
For General Motors, a further government share sale would mark another step towards full private ownership following the 2009 bankruptcy and restructuring. The company has worked to rebuild its reputation and financial standing since emerging from bankruptcy, and reducing government ownership is seen as an important milestone. However, the continued presence of the Treasury as a major shareholder has been a source of debate among investors and analysts.
The timing and pricing of the share sale will determine the final cost or recovery from the bailout. With shares trading below the IPO price, a loss appears likely if a sale goes ahead in the summer. The Treasury has indicated that it aims to balance a quick exit with minimising losses for the public. The outcome will also shape debate over government involvement in the private sector.
Next Steps and Market Watch
The next major development will come after GM reports its first-quarter earnings and the IPO lock-up expires in late May. Until then, the government’s exit strategy remains on hold. Investors and analysts will be watching closely for any signals from the Treasury regarding its intentions, as well as for movements in GM’s share price that could affect the feasibility and scale of a share sale. The situation highlights the challenges of unwinding government interventions in major industries, especially when market conditions are less favourable than anticipated. Further updates are expected after the lock-up period ends and GM’s quarterly results are released. Until then, the timing and size of any Treasury share sale remain uncertain.
