General Motors plans to buy back $5.5 billion worth of its stock from the federal government, starting the process that will unwind the U.S. Treasury's ownership of the once troubled car maker. GM will pay $27.50 per share, a premium of about $2 over its opening price today, but the news has already sent the stock shooting above that mark on the open market. It's up 8 percent from yesterday's close and is 26 percent higher for the year.
The purchase of roughly 200 million shares will still leave the government with around 300 million shares of GM stock, which it plans to sell on the open market next year. However, according to Dealbook, the stock would need to sell at around $53 a share for the the Treasury to make a profit on the deal. The government took the stock after giving GM $51 billion in bailout funds in 2009 when the company was forced to file for bankruptcy. After it emerged from bankruptcy and went public again a year later, the stock recovered, but will still result in a major loss for taxpayers. As the government slowly divests itself of the company over the next 15 months, the U.S. is expected to see a loss of about $20 billion on the bailout deal. However, the Obama administration has always argued the loss would be necessary to keep the company in business and preserve hundreds of thousands of auto industry jobs.
Last week, the government announced that it was completely removed from a similar investment in AIG, the other key plank of its major economic rescue plan. That bailout made the U.S. around $22 billion in profit, which would offset the GM loss and make the government's two major rescue packages, mostly a wash.
This article is from the archive of our partner The Wire.