Wednesday, December 19, 2012

The government is giving GM more freedom

General Motors is willing to pay a premium price to buy its' own stock.


The Wall Street Journal

Time Magazine

The Associated Press, reprinted by Yahoo

The Detroit Free Press

The Blaze

General Motors' own website

The stock is currently owned by the U.S. Government.  When the trading finished yesterday (December 18th), the price of GM stock was $25.49 per share.

As mentioned in the news articles that are linked above, General Motors is willing to pay a premium price in order to get its' stock back from the government.  Under the terms of the deal, GM will pay $27.50 per share for two hundred million shares.

Simple arithmetic says that this deal will cost GM $5.5 billion, but the government will pay a price, too.  After the deal is finalized, Obama will lose the ability to use those shares whenever the company's shareholders vote on any policy proposals, because Obama won't own the stock anymore.  Only the owners of stock can vote at shareholder meetings. and Obama is about to sell part of his shares back to the company.

This deal involves  200 million shares of GM stock.  The company has 1.57 billion outstanding shares.  The following division process shows the percentage of the total number of outstanding shares that is represented by this transaction

200 million shares
----------------------- = 12.7% of the total 1.57 billion outstanding shares.
1.57 billion shares

The news that the government was selling its' GM stock to GM was released after the NYSE closed for trading that day.

When NYSE trading began today (December 19th), the price of GM stock jumped about 8%.  The stock price is still up about 8% right this minute.

The two parties have announced that this transaction is part of a process that is expected to end with the government not being the owner of any of the stock in General Motors.  At that point, the company can then shed its' informal name of "government motors" .

From the Detroit Free Press, linked above:
The U.S. government plans to sell 40% of its General Motors stock by the end of the year and to sell the rest of its shares within 12 to 15 months, officials announced this morning.
The government’s exit from GM stock will mark the end of its direct involvement in an iconic American company that fell into disrepair and nearly collapsed in 2009 before receiving a $49.5 billion bailout and returning to job growth and profitability.


As a big fan of the freedom of the American marketplace, I hope that this process is completed quickly and that the government can begin the process of deregulating many of the businesses that are currently so heavily regulated that they cannot even make a profit.

It will come as a shock to some people who are fans of government bureaucracy, but if the regulators stopped being so intrusive, American businesses would produce more tax revenue.

My essay Taxes and national income, published October 22nd.