Cars and Drivers

What the Canadian Government's Sale of GM Really Means

Back in 2009, General Motors Co. (NYSE: GM) was bailed out and Canada was one of the buyers. There comes a time, though, when anyone and everyone should capitalize on their investments, and Canada is making that move now. Internally, this will benefit the country by limiting its exposure to the U.S. equities market and helping to balance the country’s budget.

After then markets closed Monday, Canada agreed to sell a substantial piece of its portfolio to Goldman Sachs. As a result, GM was on the trading block to the tune of 73.4 million shares. Note that this was an unregistered trade, and it will ultimately be completed April 10.

The total value of the trade was $2.69 billion, given Monday’s closing price of $33.66.

The reasoning behind this trade was part of Canada’s plan to balance the books as the country struggles with falling oil prices. At the same time, Canada is limiting its exposure to the U.S. equities market for Canadian taxpayers. These shares were originally picked up in 2009 when the bailout happened.

After completion of the sale, Canada will have sold all its remaining shares in GM. The proceeds from this sale will gradually be converted to Canadian currency over time. This would make sense, financially speaking, as the Canadian dollar is at a very weak point now relative to the U.S. dollar.

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According to Sterne Agee’s analyst, Michael Ward:

The U.S. and Canadian Governments were part of GM’s restructuring and the stake has been an overhang since 2010. Both Governments are now out of the stock. While we believe GM is restricted from participating in the block trade, we believe the company can remain active in the open market under the repurchase plan to take advantage of any price volatility.

The highest price target from analysts on GM stock is $51, so Sterne Agee is flying just below this target. The financial service firm maintained a Buy rating with a price target of $50, implying an upside of 39% from current prices.

In early trading Tuesday, shares of GM were down 2% at $35.91, in a 52-week range of $28.82 to $38.99. The stock has a consensus analyst price target of $41.53.

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