GM stake tricky to sell
Canada will divest ‘over time’: Flaherty
Canada may have trouble unloading its $3.5-billion stake in General Motors Co., as there won’t be many “buying triggers” to spur a sale, according to documents from the agency that manages the shares.
Advisers told the board of directors of Canada GEN Investment Corp., which oversees Canada’s and Ontario’s nine per cent GM stake, on May 16 that investor demand may be weak given the company’s forecast for “flat performance,” board minutes obtained last week by Bloomberg News through freedom-of-information laws show.
Directors authorized a sales strategy on Dec. 21 that allows the agency to hire dealers to sell the stock, according to the records.
Directors on May 16 agreed with management to extend a contract with investment bank Rothschild Canada Ltd. to advise on the GM holdings. Rothschild is being paid a monthly fee of $50,000, with a fee of $100,000 for months of “heavy workload.”
David Drinkwater, a Rothschild executive based in Toronto, didn’t reply to a phone call seeking comment.
Because the government may be seen as an insider, selling the shares in the world’s largest automaker could “have negative market consequences, particularly given the large size of holdings vis-a-vis the size of the public float,” directors were told by Canada GEN Investment executive Michael Carter.
The caution underscores the challenges the U.S. and Canadian governments face in unwinding their ownership more than three years after the two countries rescued the company from insolvency. Canada is the thirdlargest shareholder in GM, behind the U.S. Treasury, which holds 32 per cent, and the GM-UAW Voluntary Employee Beneficiary Association with 10 per cent.
Canada and Ontario gave $9.5 billion in financial assistance to GM in 2009, while the U.S. provided $50 billion.
The government stakes are an “overhang” on the stock because potential buyers may be worried about the impact of so many shares hitting the market, said Matthew Stover, an analyst with Guggenheim Securities LLC.
“It’s kind of like the black eye that sort of hangs on you after a fight,” Stover said. “It’s not what you want to walk around the neighbourhood with.”
“Over time, we intend to divest,” Finance Minister Jim Flaherty told reporters Thursday in Whitby, Ont. “We don’t want to be in the car business and I don’t think Canadian taxpayers want to be in the car business so we’ll get out of it over time.”
The government talks to the U.S. Treasury about its GM ownership “from time to time,” he said.
GM Canada, which makes the Chevrolet Impala and Cadillac XTS in Oshawa, Ont., is “focused on continuing to deliver business results, growing profitably and creating value for all of our shareholders,” spokeswoman Adria MacKenzie said in an email.
“Whether and when the U.S. and Canadian governments choose to divest their shares in GM is up to them.”