Hedge funds seek GM shareholder support on buyback
Hedge funds connected to General Motors Co. shareholder Harry Wilson’s bid to get a seat on the automaker’s board said Wednesday they plan to file a proxy statement with regulators and solicit support from GM shareholders. Wilson wants the automaker to buy back $8 billion in stock by mid-2016 in order to boost the value of remaining shares.
The hedge funds — Taconic Parties, Appaloosa Parties, HG Vora Parties and the Hayman Capital hedge fund founded by J. Kyle Bass — plan to file a statement with the Securities and Exchange Commission. In total, they own about 31.2 million shares, or 1.9 percent, of GM stock.
On Tuesday, Wilson, a senior member of the auto task force that pushed GM into bankruptcy in 2009 as part of a $49.5 billion bailout, said he plans to seek election by shareholders to the board at the company’s 2015 annual meeting. GM hasn’t announced the date for the meeting, but it typically is held in early June in Detroit.
Appaloosa Management said in a statement it supports Wilson’s proposals as the best way to enhance shareholder value in GM and address “an excess accumulation of unproductive cash.”
“We have in the recent past discussed a number of critical issues with GM’s management team, including the need for greater discipline and efficiency in allocating the shareholders’ capital. In addition, we highlighted the lack of transparency in GM’s executive compensation program and questioned whether it properly incents effective capital deployment. Finally, we pointed out the need for greater shareholder-oriented representation on its board of directors.
GM said Tuesday it will review the proposal and “make a recommendation based on the best interests of all shareholders.”
Separately, Standard & Poor’s Ratings Service said Wednesday GM’s corporate credit rating and stable outlook are unchanged at this time following Wilson’s proposals.
“Investor activism can be detrimental to credit quality, but we are not taking a rating action on GM at this time because the company’s intentions have not yet been made clear,” the ratings firm said in a news release.
Standard & Poor’s did say an $8 billion share buyback could cause it to “reconsider” its assessment of GM’s financial policy and its impact on GM’s corporate credit rating “given the potential for reduced financial flexibility.”
A proxy fight to win 50 percent of GM shareholders will be expensive and time consuming, experts say, since the four funds backing Wilson only own 1.9 percent of GM’s stock. Wilson said Tuesday that he and the funds were prepared to make the case to investors if necessary.
The top 10 institutional investors own about 25 percent of GM, with Harris Associates LP holding 4.8 percent. Other notable investors include Warren Buffett’s Berkshire Hathaway Inc. owning 2.5 percent and JP Morgan Chase holding 3.7 percent. The Canadian federal government is also one of the largest stockholders, holding shares remaining from the auto bailout.
Many GM shareholders aren’t happy with GM’s low stock price and analysts say the company is undervalued. GM stock rose more than 4 percent to close at $37.52 a share Tuesday.
The automaker this month said it plans a 20 percent increase of its quarterly dividend to 36 cents per share. The dividend increase would be for the second quarter, pending board approval.
GM ended 2014 with $25.2 billion in cash, down from $27.9 billion at the end of 2013. The difference was essentially the dividend GM pays to shareholders.
Wilson, 43, is chairman and CEO of MAEVA Group LLC, a turnaround and restructuring advisory firm. The regulatory filing Wednesday included details of how much MAEVA — Wilson is the principal — will receive if his proposal goes through.
It said MAEVA entered into agreements Monday with investors including Appaloosa Management L.P.; Hayman Capital Management, L.P.; HG Vora Capital Management, LLC; and Taconic Capital Advisors. Those investors will pay MAEVA a management fee of 0.25 percent annually on certain shares of stock held by each investor and the investors will pay MAEVA an incentive fee ranging from 2 percent to 4 percent based on the price appreciation of GM shares “subject to certain conditions.”
The investors also will reimburse MAEVA “for certain reasonable out-of-pocket expenses incurred by MAEVA CP in connection with Mr. Wilson seeking board representation and the preparation, negotiation and execution of the agreements.”
GM stock closed up 15 cents Wednesday to $37.67 per share.