General Motors Said to Weigh Buying Shares From U.S.

June 03, 2011, 5:15 PM EDT By David Welch

(Updates with closing share price in fifth paragraph.)

June 3 (Bloomberg) -- General Motors Co. executives have discussed buying shares from the U.S. Treasury Department to reduce the government’s 33 percent stake in the automaker, three people familiar with the matter said.

No decisions have been made on a share purchase, said the people, who didn’t want to be identified revealing internal discussions. Detroit-based GM is weighing uses for its cash, such as shoring up its underfunded pension plans, paying off debt and funding new vehicle programs, the people said.

Using some of the $30.6 billion in cash and marketable securities GM had at the end of the first quarter to reduce the government’s stake would relieve investors’ concerns that a share sale by the U.S. Treasury Department would hurt the stock, said David Whiston, an analyst with Morningstar Inc. in Chicago.

“There is an overhang on the stock because of government ownership,” Whiston said in a telephone interview. “GM may think that buying down Treasury’s stake will remove some of the overhang.”

GM fell 48 cents, or 1.6 percent, to $29.12 at 4:15 p.m. in New York Stock Exchange composite trading after earlier dropping as much as 2.4 percent. The shares have declined 12 percent since their initial public offering in November.

The government’s 500 million shares in Detroit-based GM would be valued at about $14.6 billion at today’s closing price.

‘Immediate Priorities’

“In terms of uses of cash, we have clear, immediate priorities, which include further strengthening our balance sheet and fully funding our pensions,” Jim Cain, a GM spokesman, said in a telephone interview. “Our objective is to fund our operations with cash and then return any excess cash to our shareholders. Nothing has been ruled in or out.”

Mark Paustenbach, a spokesman for the U.S. Treasury, declined to comment.

GM’s U.S. hourly worker pension plan was underfunded by $11.2 billion at the end of the first quarter. The company also had $5 billion in debt and $5.5 billion in preferred stock outstanding. The company may decide to use its cash for those obligations first, so no buyback is imminent, the people said.

While GM would want to buy the shares because the stock is cheap, President Barack Obama would be criticized for selling at a significant loss, one of the people said.

The Treasury has decided to wait until at least July 1 to prepare for a secondary offering, a person familiar with the matter has said. By filing an S-3 after July 1, the government would be able to sell shares more quickly and with a less- thorough review. In that case, the Treasury likely would wait until GM reports second-quarter earnings before selling more stock, delaying the sale until August, the person said.

The Treasury may make a third offering in November or December and doesn’t need to sell all of the shares this year, the person said.

The U.S. Treasury Department yesterday announced an agreement with Fiat SpA to sell the government’s remaining 6 percent stake in Chrysler Group LLC. The sale would bring Fiat’s stake in Chrysler to 52 percent.

--With assistance from Craig Trudell in Southfield, Michigan. Editors: Kevin Orland, Jamie Butters.

To contact the reporter on this story: David Welch in Southfield, Michigan, at dwelch12@bloomberg.net.

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net

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