GM Seeks Goldman Sachs, Morgan Stanley Advice on Buyback

General Motors is seeking advice from a group of investment banks, including Goldman Sachs and Morgan Stanley, on how to respond to four hedge funds pressuring the automaker to buy back $8 billion of its own stock, according to people familiar with the talks.

Harry Wilson, a key member of the Obama administration’s auto task force that orchestrated the 2009 bankruptcies of General Motors and Chrysler, wrote to GM CEO Mary Barra earlier this week. He wrote that he was acting on behalf of Appaloosa Management, Hayman Capital, Taconic Capital and HG Vora Capital Management, hedge funds that together hold 2.1 percent of GM shares.

Wilson, 43, is nominating himself for a seat on GM’s board of directors and said the group of investors he represents wants the share repurchase because they think GM stock is undervalued.

Buying back stock is a common way for companies to boost the stock price quickly, because it reduces the number of shares that can be traded. There are cases where companies have also diverted cash from research and development from creating future products or services.

In a statement, GM said it would evaluate Wilson as a potential board member and “make a recommendation based on the best interests of all shareholders.”

If the company doesn’t recommend Wilson as a board member, he and the four hedge funds could launch a proxy fight in which they urge other GM shareholders to vote for him without the company’s support on the grounds that he would push for the share repurchase.

On Thursday, GM shares rose 35 cents to $38.02, after reaching a new 52-week high of $38.18 earlier. Since GM received Wilson’s letter on Monday, the stock has risen 5.4 percent.

At issue is the $25.2 billion reserve of cash and quickly salable securities GM held at the end of 2014. The company says it needs that much to fund development of future vehicles and technology, as well as maintaining its investment-grade bond rating that took about five years to regain. Some large investors want more of that cash paid out to shareholders even after GM announced last week that it plans to boost its quarterly dividend from 30 to 36 cents a share this spring.

In an interview Tuesday, Wilson said that GM would still hold about $20 billion even if it spent $8 billion to buy back shares based on its expected profits for 2015.

“They’ve (now) gone past what is prudent and smart and begun hoarding cash,” Wilson said.

During the months leading up to GM’s 2009 bankruptcy, Wilson was a close adviser to Steve Rattner, who led the Obama administration auto task force.

This article appeared in print in the February 13th, 2015 edition of Hamodia.