General Motors, trying to clear the stigma of being partly owned by the U.S. government, said Wednesday will spend $5.5 billion to buy back 200 million shares of its stock.
The government, in turn, promised to sell its remaining 300 million shares on the open market starting in January and get out of the company's business within the next 12 to 15 months.
The government got its shares as part of a $49.5 billion bailout of GM that began nearly four years ago. It saved GM from collapsing into financial ruin.
GM said it will pay $27.50 each for the 200 million shares, and it expects to close the deal by the end of the year. GM stock closed Tuesday at $25.49, and it shot up 7.1 per cent in premarket trading Wednesday to $27.30.
"This is fundamentally good for the business," GM Chief Financial Officer Dan Ammann told reporters. He added that GM has market research showing that the government ownership has held down sales of the company's cars and trucks.
GM's purchase of the 200 million shares still leaves the government about $21 billion short of breaking even on its investment. To break even, the government would have to get nearly $70 each for its shares.