General Motors has announced it will use a new public offering to sell off $1 billion in preferred stock in Ally Financial Inc. — further distancing itself from its long-time in-house lending arm.
The shares represent 100% of the outstanding Series A preferred stock for Ally, which used to be known as GMAC, for decades the so-called “captive finance subsidiary” of the Detroit automaker. GM gave up control of GMAC in 2006 and has since taken steps to expand its sources of automotive lending.
“Today, we are taking another step forward in our strategy to strengthen and simplify the company’s balance sheet,” said Chris Liddell, GM outgoing vice chairman and chief financial officer.
The transaction will result in a book gain of $300 million to be recorded in the first quarter of 2011. Following the sale, GM’s investment in Ally Financial will consist of a 9.9% interest in Ally common stock. GM reportedly passed on an opportunity to exchange the preferred shares for more equity in Ally Financial, which was originally known as General Motors Acceptance Corp.