GM Blinks: $5B Share Buyback Authorized, Wilson to Withdraw Board Seat Request

Mar 9 2015 | 9:25am ET

General Motors has agreed to a $5 billion share repurchase plan suggested by activist investor Harry Wilson. In return, Wilson has withdrawn his request for a seat on the automaker’s board of directors.

The deal avoids a potentially nasty proxy fight.

Wilson is a former member of President Obama’s Auto Industry Task Force, where he helped restructure GM. He was a partner in hedge fund Silver Point before joining the task force, and worked at Blackstone and Goldman Sachs beforehand.

Wilson has been backed by several hedge funds, including Taconic Capital Advisors, Appaloosa Management, HG Vora Capital Management and Hayman Capital Management, who collectively control more than 2% of GM’s outstanding shares. 

Frustrated by a stagnant stock price, he has has pushed the automaker for better management of $25 billion in cash, greater focus on shareholder value and better transparency. The company’s share price has been stuck in the low $30s despite strong U.S. equity markets, trading at or near the $33 price at which a restructured GM returned to public markets in 2010.

A compensation arrangement between Wilson and the hedge funds backing him has generated controversy. Wilson will earn a portion of gains earned on GM stock by the hedge funds backing him, which raised significant questions about his independence were he to become a director.

Some of the criticism has been levied by none less than Warren Buffett, whose Berkshire Hathaway owns 2.55% of GM’s stock.

The buyback will begin immediately and conclude before the end of 2016, according to GM’s board. Among other aspects of deal, GM set a 20% return target on invested capital and will maintain a cash balance target of $20 billion, returning all excess free cash flow to shareholders. 

The company also pledged to maintain an investment-grade balance sheet, a task potentially complicated by recalls and an ongoing investigation into defects in the company’s ignition switches. 

In addition to the share buyback, GM confirmed prior plans to boost its dividend to $0.36 per share. All told, some $10 billion will be returned to shareholders by the end of 2016.


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