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General Motors Co 8-K Report, Material Agreement (Mar 24, 2011)

Filed March 24, 2011For Securities:GM

Summary

General Motors Co. (GM) filed an 8-K on March 24, 2011, detailing significant events as of March 17, 2011. The most crucial update for investors concerns the disposition of GM's stake in Ally Financial Inc. GM HoldCo, a subsidiary, entered into an Underwriting Agreement to sell approximately 40.87 million shares of Ally's Series A Preferred Stock. This sale is expected to yield about $1 billion in net proceeds for GM and will result in GM HoldCo no longer holding any of this preferred stock or receiving associated dividends. The transaction is anticipated to generate a book gain of $0.3 billion for GM in the first quarter of 2011. Additionally, the filing addresses changes in executive compensation. Daniel Ammann's compensation package as the newly appointed Senior Vice President and Chief Financial Officer (effective April 1, 2011) is detailed, including his base salary, salary stock units, and TARP-compliant restricted stock units. These arrangements are structured to comply with government regulations concerning executive compensation for companies that received TARP funds. The modifications to Mr. Ammann's previously granted restricted stock units are also outlined.

Key Highlights

  • 1GM HoldCo to sell approximately 40.87 million shares of Ally Financial Inc.'s Series A Preferred Stock for an estimated $1 billion in net proceeds.
  • 2The sale of Ally Series A Preferred Stock will result in GM HoldCo divesting its entire stake in this security.
  • 3GM expects to recognize a book gain of $0.3 billion from the Ally stock sale in the first quarter of 2011.
  • 4Daniel Ammann appointed Senior Vice President and Chief Financial Officer, effective April 1, 2011.
  • 5Ammann's compensation package includes a $750,000 annual base salary, salary stock units valued at $2,050,000, and TARP-compliant restricted stock units valued at $1,400,000.
  • 6Restricted stock units previously granted to Mr. Ammann will have their vesting accelerated to March 31, 2011.

Frequently Asked Questions

This sale is significant because it represents a move by GM to monetize a substantial investment, generating approximately $1 billion in cash and realizing a $0.3 billion book gain. It also marks the complete divestiture of GM's holdings in this specific Ally Financial preferred stock, potentially simplifying GM's financial structure and reducing its exposure to this particular asset.

The sale is expected to result in a book gain of $0.3 billion, which GM will record in the first quarter of 2011. The net proceeds from the offering are estimated to be around $1 billion, providing the company with additional liquidity.

Daniel Ammann's compensation as the new CFO includes an annual base salary of $750,000, salary stock units valued at $2,050,000 (delivered over three years starting in 2012), and TARP-compliant restricted stock units valued at $1,400,000. His previously granted restricted stock units will also vest earlier, on March 31, 2011.

While GM is selling its Series A Preferred Stock in Ally, Ally Financial remains an important financing partner for GM dealers and customers. The 8-K filing notes Ally's role in providing wholesale floorplan financing and retail customer financing. The sale of this specific preferred stock does not necessarily imply a complete severing of their business relationship, but rather a restructuring of GM's investment in Ally.