GM share buyback to cut 4Q net income by $800 million
General Motors Co. on Wednesday repurchased 156.1 million shares of Series A preferred stock for $3.9 billion, a transaction that will reduce the automaker's fourth-quarter net income by $800 million.
The Detroit carmaker in November announced it was offering $2.5 billion in senior unsecured notes to raise money and that it intended to redeem the all the outstanding preferred shares held by the UAW Retiree Medical Benefits Trust and Canadian government. GM had an option to redeem the shares on or after Dec. 31.
GM bought back 140 million shares from the retiree benefits trust and 16.1 million from the Canada Gen Investment Corp.
The preferred shares were expensive because they carried a 9 percent dividend that cost GM about $348 million a year. GM opted to retire the higher-cost preferred shares and replace it with lower cost debt. The automaker used the notes and cash to buy back the shares.
The buyback of the preferred shares will be listed as a special item in GM's fourth-quarter earnings.
As part of the 2009 bailout of GM, the retiree benefit trust, a voluntary employees' beneficiary association, or VEBA, acquired about 260 million shares of GM preferred stock. In 2013, GM bought 120 million shares of Series A preferred stock from the UAW VEBA for $3.2 billion.
The VEBA, which provides health care benefits to about 755,000 UAW retirees and dependents, also owns 140.15 million common shares of GM stock. As of February, the UAW VEBA owned 8.8 percent GM common shares.
The Canadian government in September 2013 sold 30 million shares of GM common stock, netting proceeds of more than $1.1 billion in U.S. dollars. In March, the Canada Gen Investment Corp. holding company, Canada Development Investment Corp., said it owned about 7 percent of common GM shares.
GM's stock closed down 18 cents on Wednesday to close at $34.91 a share.