General Motors (GM) said Monday it will launch a $5 billion share buyback and put forward a new plan for capital allocation that promises investors the potential for further cash returns.
The automaker has reached a deal with an investor group that averts a proxy fight. As part of the agreement, investor Harry Wilson will drop his effort to get a seat on GM’s board. Wilson praised the company’s capital plan.
The Wall Street Journal reported earlier that a buyback is expected on Monday. An agreement comes amid the threat of a proxy fight with hedge funds that have been demanding that GM return more cash to shareholders on a faster timetable.
The Detroit auto giant signaled last month that it intended to return to investors a chunk of its roughly $25 billion cash pile. But company executives didn’t offer specifics, and indicated that any significant new share repurchase would have to wait until the resolution of certain legal proceedings.
GM is under investigation by the U.S. Department of Justice in connection with its mishandling of recalls related to a deadly ignition switch defect in older cars. The company faces a separate and potentially costly legal challenge connected to the delayed ignition switch recalls in U.S. bankruptcy court.
A group of hedge funds led by investor Harry Wilson disclosed in February that it had amassed a 1.9 percent stake in GM shares, and said GM should launch an $8 billion share buyback over the next year.
Wilson is a former member of the Obama administration auto task force who was instrumental in GM’s federally financed bankruptcy restructuring in 2009.
Wilson is also seeking a seat on GM’s board of directors. It’s not clear how or whether GM will offer a response to that proposal today.
Last week from another big GM shareholder, Warren Buffett, who told CNBC that he disagreed with putting “somebody on the board who has an option on some other people’s stock which is only good for two years.” The reference was to an agreement Wilson has with his hedge fund allies that could pay him 2 to 4 percent of the gains on their GM shares over the next two years.
GM’s largest single shareholder is a healthcare trust controlled by the United Auto Workers union
UAW President Dennis Williams told Reuters last month that he was concerned the proposed $8 billion buyback was premature, but he didn’t oppose a smaller return of cash.