S&P 500 (.INX) Gives General Motors Company (GM)’s Stock a Boost

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Before being eligible to join the index, S&P requires a market cap of at least $4 billion (GM’s is about $48 billion), four consecutive profitable quarters (GM has had 13 and counting), and at least six months of trading following an IPO (GM’s IPO was in November of 2010).

General Motors Company (NYSE:GM) obviously has had all of that covered for a while. But S&P also requires that at least 50% of a company’s stock be “free float”, which is to say trading in the open market. That’s what held GM back: The U.S. Treasury’s holdings of GM stock, a legacy of GM’s $49.5 billion bailout, meant that GM’s free float was less than 50% of the shares outstanding.

GM’s free float was just over 44% as of the beginning of 2012. But now, with the Treasury in the process of selling off its stake in GM, the company’s free float has risen over 50%. It’s probably in the neighborhood of 51.5 to 52% now. That’s good enough for S&P.

So why is this good for GM?
It’s good for GM for all of the obvious reasons. It’ll boost the stock, which means that GM could raise more money by selling more stock if necessary. And it’s a seal of approval that will enhance GM’s creditability with investors and with Wall Street generally, which can’t be bad for GM’s ongoing business.

But it’s also a boon because the boost to GM’s share price will make the government’s exit that much more profitable. The U.S. Treasury began selling off its GM holdings earlier this year, and plans to have them all sold by sometime early next year.

At current prices, the government is almost certain to take a loss on its “investment” in GM, perhaps as much as $10 billion or more. But GM’s stock has been rising since the government started selling – it’s up about 18% so far in 2013.

It’s unlikely to rise enough to give the government a profit, of course. At this point, that would require a share price well over $70. But every bit helps – and from GM’s perspective, the sooner the government is “paid back”, the better.

The article S&P Gives GM’s Stock a Boost originally appeared on Fool.com is written by John Rosevear.

Fool contributor John Rosevear owns shares of General Motors. Follow him on Twitter at @jrosevear. The Motley Fool recommends General Motors and H.J. Heinz Company.

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