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 Ally went public in April, though hedge funds and other investors
bought about 40 percent of the company privately in November and in
January. Those investors agreed to refrain from selling their shares
to public investors for six months, which period ends next week for
the first set of investors, and in July for the second set.
The U.S. Treasury, which owns around 16 percent of the auto lender,
can also start selling a small amount of shares after June 8, and
larger blocks starting August 7.
The Treasury and some of the private investors are sitting on big
profits, which give them room to sell even if the company's shares
extend their recent six-day slide. A Treasury official said May 9
that the government's strategy is to get as much value from its Ally
shares as soon as possible.
These possible sales are hurting the company's share price, said
Mark Palmer, an analyst at brokerage BTIG who rates the company's
shares a "buy."
Palmer called Ally "an attractive fundamental story that is being
held back" by investors' expectations of future share sales. Gina
Proia, a spokeswoman for Ally, the former General Motors Acceptance
Corp, declined to comment.
GM set up what's now Ally in 1919 to help finance car sales. In
2006, private equity investors led by Cerberus paid $7.4 billion for
a 51 percent stake in Ally, with GM retaining the rest. During the
financial crisis, when the government bailed out Ally multiple
times, GM's and Cerberus's stakes were reduced as taxpayers injected
more capital and took ownership stakes. At this stage, Ally has no
formal connection with GM.
The U.S. government, meanwhile, does. It pumped $17.2 billion into
Ally during the crisis, acquiring a 74 percent stake in the process.
The government has so far realized a profit of about $700 million
after having sold most of its stake and receiving billions in
interest and dividend payments, but still has 16 percent of the
company, worth about $1.82 billion based on Friday's closing price
of $24.21.
The large number of Ally shares expected to be sold in the coming
months reflect the long process that Ally has gone through to regain
its independence.
Ally first filed to go public in 2011, but big losses at its
subprime mortgage unit Residential Capital spooked investors, and it
delayed its initial offering. ResCap eventually went bankrupt.
By last fall, Ally shareholders including the Treasury and General
Motors Co were looking to cash out of their investment, and the
company itself was eager to raise money to start paying back
additional funds owed to the government. In November, Ally sold $1.3
billion of shares at an average price of about $19.35, adjusted for
splits. Those investors can now sell and realize a profit of about
25 percent before taxes, based on Friday's price. Those shares,
amounting to 14 percent of the company's stock, can be traded
publicly starting May 20.
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In January, the U.S. Treasury sold $3 billion Ally shares to
investors at an average price of $23.60. Those shares can be sold
starting July 23, although at current prices investors would reap
hardly any profit. The January and November deals combined account
for 40 percent of Ally's shares.
The Treasury, meanwhile, can start selling small amounts of its
shares after June 8, but can't sell big blocks of shares until
August 7, according to Ally's IPO registration filings. Ally's Chief
Executive Michael Carpenter in an interview with Reuters said last
month that he expects Treasury to have sold all its shares by the
end of the year.
TWITTER PLUNGE
When a big group of investors can suddenly sell their holdings,
stock prices can plunge. Earlier this month, insiders, venture
capitalists and other pre-IPO investors in micro-blogging site
Twitter Inc were allowed to start selling their shares, six months
after the company went public. Those investors held 82 percent of
Twitter's equity, and the company's shares fell 18 percent the day
they could start selling.
At least some investors are bracing for the company's shares to
drop. About half of the 10.07 million Ally shares that can be sold
short-- a bet that the company's stock price will fall -- have been
sold short, according to data provider Markit. That's almost 3
percent of the roughly 194 million Ally shares that are trading now.
One investor that may sell shares is Dan Loeb's Third Point, a hedge
fund that said in January that it owned about 9.5 percent of Ally's
outstanding stock, making it the auto lender's second largest
shareholder. It isn't clear when Third Point bought its private
shares, and the fund's spokeswoman declined to comment.
Palmer said any buyers at this stage may be picking a winner. Ally
has plenty of room to boost profitability by taking steps that it
says will be easier once the Treasury no longer holds any part of
the company. For example, the company will be able to fund more
loans at its bank, he said.
(Reporting by Peter Rudegeair and Mike Stone in New York, Additional
reporting by David Gaffen in New York, Editing by Dan Wilchins and
John Pickering)
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