General Motors (NYSE:GM) is slowly writing a comeback story.
From 1927 until 1958, GM reigned as the largest company on Standard & Poor’s 500 index. But the company’s prestige did not last. Despite leading global automotive sales for 77 consecutive years, operational missteps – exacerbated by falling sales, and later a cratering economy — pushed the Detroit, Michigan-based automaker to the brink of collapse. A $49.5 billion government bailout in 2008 and 2009 helped the company survive the financial crisis and Great Recession, and it finally began trading on the New York Stock Exchange once again in November 2010.
In return for the bailout funds, the government was given a 60.8 percent GM’s stock. Ever since, the government has been dwindling its stake, and after the market closes Thursday, it will cut its holdings to under 14 percent. GM said in a regulatory filing Thursday that the Treasury Department will sell 30 million shares, leaving it will just 189.2 million shares. As a result, S&P announced that GM will reclaim its position on the storied index, marking another milestone since filing for bankruptcy reorganization in 2009, when it was kicked out of the S&P slot it had held since the index began in 1925.
This announcement coincides with GM’s annual shareholders meeting, and so the news will likely cast a positive spin on the year’s achievements, which included a market share gain of 10 percent in the first quarter. Even though profits at its core North American operations declined 14 percent during that same period, shares climbed above the initial offering price of $33 for the first time in two years after results were released. In total, they have risen about 19 percent so far this year.
“The GM team has been working very hard to earn the business of customers around the world and to win the confidence of investors, and rejoining the S&P 500 shows we’re very much on track,” said GM Chief Executive Officer Dan Akerson in a statement. Not only is rejoining the S&P 500 prestigious, as companies must be invited, it will also likely give the company’s stock price an approximate 5 percent bump, according to Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.
As of May 10, the Treasury Department had recovered approximately $30.7 billion of the bailout funds, and the federal government has said it intends to sell its entire stake in GM by April of 20014. Once its ownership in GM falls below 10 percent, restrictions on the number of shares it can sell per quarter will be lifted, opening the door for GM to buy more shares and hasten the government’s exit.
At the shareholder meeting, Akerson said the companies finances were strong enough to consider paying a dividend or even buy more stock from the federal government. But the primary focus must be investing in new vehicles and equipment. “I think first and foremost, we must continue to invest in this company so we don’t lose the competitive edge,” he said, according to The Associated Press.
Even so, Akerson said the company will consider restoring the dividend as a means to return capital to shareholders. Fellow Michigan automaker Ford (NYSE:F), which avoided bankruptcy protection by borrowing billions, restored its dividend in March 2012 after suspending the payment for about five years due to financial problems.
American International Group (NYSE:AIG), which received federal bailout funds like GM, will also rejoin the S&P.
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