GM, Wilson Compromise, Agree on $5 Billion Buyback

General Motors has agreed to buy back $5 billion of its shares and Harry Wilson will withdraw his bid for a seat on the company’s board on behalf of four hedge funds.

“We will continue to invest in innovative technologies and world-class vehicles that will deliver sustained profitable growth and maximize returns to shareholders.” GM CEO Barra said. “This is the right framework for the company.”

The agreement settles a major challenge from a group of GM’s largest investors who argued that the company’s stock was undervalued given the strength of the North American and Chinese auto markets. They also contended that the $25.2 billion in cash GM held at the end of 2014 was more than it needed.

The compromise also avoids what could have been a contentious proxy fight that would have diverted GM’s attention at a time when it is trying to restore its troubled European business to profitability, and put last year’s record level of recalls behind it.

Ken Feinberg and his team of disaster-compensation experts continue to review applications from people whose injuries may have been caused by defective GM ignition switches. GM has estimated that that compensation program will cost between $400 million and $600 million.

The Department of Justice is investigating whether GM was criminally liable for not recalling sooner about 2.5 million vehicles with the defective ignition switches.

Those issues did not prevent GM from responding to the pressure from Wilson and the four hedge funds. Coupled with a previously announced increase in its quarterly dividend from 30 to 36 cents per share, the agreement with Wilson and the four hedge funds means GM will distribute $10 billion to its shareholders between now and the end of 2016.

Wilson, a former adviser to President Barack Obama’s auto task force that shepherded GM through its 2009 bankruptcy, nominated himself last month for a seat on GM’s board. He was acting on behalf of four hedge funds who argued that GM stock was undervalued.

This article appeared in print in the March 10th, 2015 edition of Hamodia.