The governments of Canada and the province of Ontario are selling 30 million shares of General Motors to Bank of America Merrill Lynch and the Royal Bank of Canada. Should investors take a cue from the bureaucrats or should they join in with the banks?
Many Americans know that the US federal government put up some $80 billion in an effort to save the auto industry in the last decade. Two of the US government's partners were the Canadian and Ontarian governments. The Canadian Auto Workers Union (CAW) has 170,000 members in Ontario alone and there was as much political pressure in Ottawa as there was in Washington to "do something" to save the troubled industry five years ago.
One of the biggest employers on both sides of the Detroit River is GM. In the end, the Canadian and Ontarian governments – through Canada GEN Investment Corp., a holding company – gave C$10 billion to help bail out GM.
The sale of 30 million shares at today's price of about $36.40 per share will give the two governments nearly $1.1 billion. However, Canada GEN will still own 110 million common shares worth more than $4 billion. As well, it will have 16.1 million preferred shares.
Meanwhile, the US Treasury has been selling shares as part of a 12-15 month plan it announced back in December. It reportedly took in $811 million on a sale of GM stock last month. It is believed the US government still owns about 186 million shares of the company.
So, are North America's governments selling shares of GM on the cheap?
On GM's fundamentals is John Stephenson, portfolio manager at First Asset Investment Management in Toronto. He says there are some bullish factors for investors to consider. Checking the charts on GM is Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, who sees GM coming up to a key resistance level soon.
Will it be a situation where the governments' losses will be your gains? Watch the video above to see Stephenson and Ross analyze GM and decide for yourself.