GM strikes deal with investor, agrees to US$5b buyback

Detroit

GENERAL Motors will buy back US$5 billion in shares by the end of 2016, and activist investor Harry J Wilson will give up his request for a board seat after reaching an agreement with the automaker.

Mr Wilson had requested a board seat and asked the Detroit-based company last month to use some of its cash to buy back US$8 billion in shares. He was working with four hedge funds that collectively own more than 2 per cent of the stock. GM also said it will adopt a strategy to return free cash flow to shareholders while keeping investment grade credit and a minimum balance of US$20 billion.

The agreement with Mr Wilson ends two months of discussions in which he urged chief executive officer Mary Barra to return money to shareholders and be more open about company performance targets. As part of the announcement, GM also said it's investing in its business with a target of driving 20 per cent returns on invested capital and will update shareholders on its progress every quarter.

"Mary's highly thoughtful approach is a sea change from the old GM and it's why we were able to come to a win-win conclusion so quickly," Mr Wilson said on Monday morning in a telephone interview.

GM raised its dividend earlier this year and, prior to Mr Wilson's arrival, had been considering plans to return more cash to investors later in the year either through a buyback or dividend bump, a person familiar with the had said.

The company was waiting to see how big its legal costs would be in connection with a recall of 2.59 million small cars with defective ignition switches that have been blamed for 57 deaths as of Feb 27. GM could be forced to pay a large fine to the US Department of Justice as a result of the recall.

Mr Wilson, who was on President Barack Obama's Auto Task Force and had a key role in restructuring GM during its 2009 bankruptcy, said he wanted to see GM return cash to investors and give them more operating benchmarks to show improvement in the business.

The former US Treasury official pressured GM, citing shareholder frustration. Mr Wilson's GM holdings are worth about US$1.1 million. Among its board members, only chief executive officer Mary Barra, with US$4.59 million in GM stock, former executive Steve Girsky and independent director Neville Isdell have more. GM disclosed in February that Mr Wilson nominated himself for the board and was backed by Appaloosa parties, Taconic parties, HG Vora parties and the Hayman parties, who together own 34.4 million shares, or 2.1 per cent. BLOOMBERG