U.S. Government Ponders GM Exit Strategy

April 19, 2011
If you were a 26.5 percent shareholder in a major corporation with a declining stock value, what would you do?

Would you look to dump your shares, which you bought at $53 each, at a market price currently below $30?

Would you hold onto them, in hopes that the shares would recover some additional value, minimizing your loss?

That’s the decision faced by Treasury Secretary Timothy Geithner, who can’t take any action until an IPO lock-up expires on May 22.  Between now and then, bond holders of the now defunct “old GM” are to receive stock for existing GM shares, which will likely lower the market price of GM stock further.

While the Treasury has no obligation to sell their stock in GM at the expiration of the IPO lock-up, experts think that the government will sell off a significant share of GM stock as early as this summer. Delaying until next year could create unwanted publicity in an election year, and sources say that the administration would like to sever ties with GM as quickly as possible.

A sell down in May is unlikely, since there isn’t sufficient time between the expiration of the IPO lock-up and the end of the month. A June sale is more likely than a July sale, unless there are indications of a strong performance by GM in the second quarter. If the Treasury believes that the GM stock price will rise on second quarter earnings, expect a sell down to be delayed until August or September.

[Wall Street Journal]


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