GM Bends to Activist Investors, Plans $5 Billion Stock Buyback

DETROIT – General Motors announces today an agreement with a group of activist shareholders to make an initial repurchase $5 billion of company stock, beginning immediately and concluding by the end 2016.

The move comes in the wake of pressure by a group of shareholders for GM to give up some of its free cash and install former auto-rescue task force member Harry Wilson to its board of directors. In return for the share buyback, Wilson says he will withdraw his nomination to the board, which would have gone to a vote of all shareholders in the summer.

“As we continue to execute on our plan to become the most valued automotive company, our track record of improved operating performance, strong earnings momentum, and disciplined capital investments provide the foundation for a comprehensive capital allocation framework,” GM CEO Mary Barra says.

“We will continue to invest in innovative technologies and world-class vehicles that will deliver sustained profitable growth and maximum return to shareholders,” she says.

The buyback heads off a potential fight with investors who felt the automaker should return some of its $25.2 billion in cash to shareholders. The repurchase will leave GM with $20 billion of operating cash, which the automaker says will be its target cash balance going forward.

The investor group holds 1.9% of outstanding GM shares. When they announced their bid in February, they sought an $8 billion buyback.

Speaking to journalists today at GM world headquarters here, Barra called the $5 billion deal “a balance” between the buyback amount sought by Wilson’s group and the intentions the company has had over recent months.

“We found high alignment,” she says.

Wilson, who stood to gain some 4% of the buyback as compensation for representing the investor group, called the agreement a “win-win outcome.”

The buyback drains billions from a war chest GM began stockpiling after it emerged from its 2009 taxpayer-backed bankruptcy, a restructuring Wilson helped orchestrate as a part of President Obama’s auto-rescue task force.

The cash pile was seen as fueling GM’s comeback by funding new-product programs that would put it on sounder footing with rich rivals such as Toyota. GM reiterates plans to reinvest $9 billion this year in new product, and intentions of capital expenditures in future years of between 5.0% and 5.5% of its annual revenue.

The buyback comes despite support from other investors, such as Warren Buffet who last week endorsed GM management and its financial direction.

“We regularly talk to all of our shareholders,” Barra says. “We are always listening.”

GM Chief Financial Officer Chuck Stevens says the $20 billion target in operating cash represents the “low end” of where the automaker intends to function in the near term. That target will reduce in the future, he adds, as GM wrings out greater efficiency in its business.

The buyback comes on top of a plan announced earlier this year to distribute $5 billion to shareholders over the next two years in the form of a quarterly dividend.

Speaking to the lackluster performance of GM’s stock, which has hovered between $30 and $35 for the last 12 months and motivated Wilson’s group to pursue the buyback, Barra suggests it does not reflect the company’s value given recent decisions by her management team.

“In the last five years have made a lot of progress on all aspects of the business,” she says, admitting, “We need to do that consistently, year after year.”

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