Sale of GM Warrants Brings a Chunk of Change to UAW Trust
“It’s a company that’s not only been a source of income but a source of pride for generations of autoworkers and generations of Americans,” President Barack Obama said in June 2009, when General Motors (NYSE:GM) was preparing its restructuring plan.
“But while the GM of the future will be different from the GM of the past, I am absolutely confident that if well managed, a new GM will emerge that can provide a new generation of Americans with a chance to live out their dreams, that can out-compete automakers around the world, and that can once again be an integral part of America’s economic future.”
Now — slightly more than four years later — the May through June quarter could go down as a turning point in the company’s return to profitability, or so GM Chief Executive Officer Dan Akerson indicated during the company’s second-quarter earnings call.
“Strengthening our brands, improving quality and streamlining the organization is starting to pay off,” Akerson said. “Not only are GM’s products the best in memory, our business is more resilient in the face of economic headwinds.” He further noted that the company’s short-term challenges were no longer the “the tail wagging the dog.”
But the company is still cleaning up several lingering issues. When the automaker went through its 2009 bankruptcy restructuring, it gave the United Auto Workers union 17.5 percent of its common stock, $6.5 billion of preferred shares, and a $2.5 billion note to finance a trust that will take over retiree health care costs. GM also gave the trust fund a warrant for another 2.5 percent of GM’s stock.
While GM redeemed the note in October 2010 for $2.8 billion, UAW has not yet sold any of the preferred stock. The UAW trust sold 20 million shares of GM stock at $34.41 per share when the automaker returned to the S&P 500 in June, generating approximately $688 million.
As of now, the trust owns 10 percent of GM, or about 140 million shares, excluding the warrants. The trust was given the warrants in exchange for about $20 billion it was owed in long-term health care costs.
The trust received 45.4 million warrants as part of the automaker’s 2009 restructuring and is expected to fetch $171 million for them, GM said in a press release Wednesday, The Detroit News reports. These warrants allow the buyer to acquire shares of GM’s stock at $42.31 before or on December 31, 2015. GM closed at $35.48 on Wednesday, and shares have not closed at $40 at any time in the past five years.
Where shares are currently trading puts the warrants in the red, and the trust said that that stock is at the low end of the price range it was willing to sell. When the stock price rises above the warrant price, it can be exercised at a profit.
The offering was priced at $3.85 per warrant through a modified Dutch auction that took place on August 6, according to The Detroit News. The warrants will trade on the New York Stock Exchange under the symbol “GM WS C” and buyers were allowed to begin selling Wednesday morning; the sale will close on August 12.
It is likely that large Wall Street investors will buy the warrants in order to be able to acquire GM shares in the future without have to spend a significant amount of money now. This year to date, shares have advanced 27 percent, with the stock as rising as high as $37.71, the highest price since January 2011.
The federal government has worked to exit its position as well. Last month, the U.S. Treasury said it sold close to $2 billion in the automaker’s stock in June, and the company’s share price prompted it to lower its estimated losses on the $85 billion bailout by $2.5 billion to $17.9 billion. With the June sale, the government has recovered $3.35 billion on the $49.5 billion bailout.
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