General Motors Reveals Stock-Swap Details; Plan Called ‘Generous’
General Motors Corp. Thursday set an exchange rate that analysts called generous for its planned repurchase of as much as 14% of its common stock in exchange for about $9 billion of GM Hughes stock.
The world’s largest auto maker said it will issue 1.065 shares of stock in its Hughes Electronics Corp. communications unit--best known for its DirecTV pay-TV system--for each share of GM common stock shareholders offer to swap.
GM’s stock closed up 25 cents to $88.75 a share after the announcement, and the Hughes tracking stock closed down $7.81 to $90, both on the New York Stock Exchange.
The exchange ratio reflected a premium of 17.7% on GM common stock, based on Wednesday’s closing prices of $88.50 per share of GM and $97.81 per share of Hughes, GM said. The exchange offer will begin Monday and is expected to expire at midnight EDT May 19.
Prudential Securities analyst Michael Bruynesteyn said it was a good deal for both GM and its shareholders.
“The premium is generous, which is good,” he said. “That will entice a sizable portion of the GM shareholder base to tender their shares for [Hughes] stock.”
GM said it will accept as many as 86.4 million shares of GM common stock and will issue as many as 92 million shares of Hughes stock. If more than 86.4 million shares of GM stock are offered for exchange, GM will accept such shares on a pro rata basis under the terms of the exchange offer.
The auto maker also plans to contribute during the second quarter about $7 billion of Hughes stock to its U.S. Hourly Rate Employee Pension Plan and a trust established principally to fund retiree health-care benefits.
The two transactions are an effort to strengthen GM’s financial position and create shareholder value. They are expected to improve GM earnings through share reduction and strengthen GM’s overall finances by reducing annual pension and other post-retirement employee benefit expenses.
The deals will not reduce Hughes’ earnings per share, the auto maker previously said. The stock exchange for Hughes shares also will generally be tax-free.
A prospectus covering the exchange offer will be distributed to GM shareholders when it begins.
