Hedge funds push GM for $8bn share buyback

A central figure in the 2009 restructuring of the US auto industry is seeking a seat on General Motors’ board, in a surprise effort to force the company to spend $8 billion on share buybacks, the company said on Tuesday.

Harry Wilson is working with four hedge funds - Taconic Capital, Appaloosa Management, HG Vora and Hayman Capital Management - that together own 2.1 per cent of GM's ordinary shares. News of his initiative sent GM's shares up 2.6 per cent to $36.94.

GM, which owns the Opel brand amongst others, said it was evaluating his proposal and advised shareholders to take no immediate action. However, his plans appear to run counter to GM’s insistence that it needs to maintain a “fortress balance sheet” given the auto industry’s cyclicality.

News of Mr Wilson’s candidacy emerged less than a week after GM said it would increase its dividend from this year’s second quarter 20 per cent to 36 cents. Some analysts have voiced unhappiness with the speed of distribution of the $25.2bn cash GM held at the end of 2014.

GM had $15.8bn net cash at December 31, excluding financing operations. It has $30.6bn in underfunded pension liabilities.

At its investor day last October GM said it wanted to maintain cash reserves from automotive operations near the top of its $20bn to $25bn target range to deal with the future costs of its botched recall of faulty ignition switches in compact cars.

“The company’s intention to increase the dividend is consistent with its balanced capital allocation strategy,” the company said. “Its goal is to maximise long-term shareholder value through both stock price appreciation and return of capital via dividends and share repurchases.”

Mr Wilson wrote in a letter published on GM’s website that the carmaker’s shares were “substantially undervalued,” the company was “substantially overcapitalised” and a repurchase would create “substantial shareholder value”. Documents published alongside the letter show that he will receive up to 4 per cent of the appreciation in value of the hedge funds’ shares following the announcement of his candidacy.

Mr Wilson was part of the auto industry task force under Steven Rattner that managed the bankruptcy of GM and Chrysler and funnelled resources to a series of suppliers during the collapse in demand after the financial crisis.

GM restarted dividend payments last year, after the US Treasury disposed of the last of the holdings in the company it acquired during the bankruptcy. The company's performance was overshadowed for much of last year by revelations about its failure for more than a decade to recall vehicles with an ignition switch fault that led to at least 51 deaths. It is likely to face substantial fines on top of the $35m it paid last year over its failure to notify the National Highway Traffic Safety Administration over the faults.

Copyright The Financial Times Limited 2015