Howes: GM share campaign pits former insider vs. inside

Daniel Howes
The Detroit News

If nothing else, Harry Wilson's demand for a board seat at General Motors Co. carries the faint whiff of an inside job.

Here's a senior member of the disbanded Obama auto task force aligning himself with holders of a 2-percent stake in GM to also demand an $8 billion share buyback by the middle of next year. He's the guy credited with spearheading the Detroit automaker's run through bankruptcy, asking hard questions and reconstituting its board of directors.

Add a potential buyback to the assessment of some on Wall Street that GM's shares remain undervalued, and the prospect of reaping a considerable windfall from the squeeze, is not insignificant — for Wilson or his deep-pocketed partners. That's why they're doing it.

"Mr. Wilson's notice further indicates," GM said in a statement, that there exists "a fee arrangement under which he will receive a percentage of the group's profits from their investment in GM."

This should be interesting: Wall Street sharpies are looking to extract cash from a recovering basket-case that finally, courtesy of Wilson, American taxpayers and a lot of people inside GM, has regained investment grade and rebuilt a balance sheet allegedly rich enough to manage gyrating economic cycles.

Shouldn't be hard to determine who'll be sporting the black hats in this drama, if it gets that far. Except that corporate battles like this often turn more on shades of gray than stark colors separating the good guys from the bad.

Wilson is no stranger to GM. In arguably the definitive insider account of the auto task force's restructuring of GM, Wilson emerges as a force of nature who routinely challenged GM traditions and practices, its planning and business assumptions, its top executives and the culture they reflexively perpetuated.

"We both understood that while a quick trip through bankruptcy could repair GM's balance sheet, unless we somehow fixed the culture, the company would slide back toward the abyss," writes Steven Rattner in the "Harry Wilson's War" chapter of his memoir "Overhaul."

"Typical of the cultural challenge was a lack of focus on shareholder value. In all our time interacting with GM executives, we never heard any of them utter that all-important term."

None of those executives occupies GM's c-suite today. Debt is dramatically lower; cash generation is higher; the balance sheet is stronger; the cash hoard sits at $25.2 billion, and is projected to approach $30 billion by the end of next year, according to estimates by Barclay's.

If Barclay's (and Wilson) are right, GM could afford to spend $8 billion buying back its own stock, bidding up the value of the shares that remain. If they're overly optimistic — always a risk in a capital-intensive business sensitive to macro-economic swings — a buyback of that scale could push GM's cash stash below $20 billion, the level it needs to retain its investment grade and properly fund its captive financing arm.

Still, its near-term prospects are bright. North America is the company's earnings engine, not the millstone weighing on the enterprise when the global financial meltdown pushed GM to the brink of collapse in December 2008, a month after Barack Obama had been elected president. And GM has choices its leadership couldn't have imagined little more than six years ago.

Among them: the financial flexibility to assess, with the help of their investment bankers at Morgan Stanley and Goldman Sachs Group Inc., whether Wilson might have a point. In interviews and filings, he and his partners contend that GM is hoarding too much cash that could otherwise be distributed to, well, them.

Before Wilson walked into CEO Mary Barra's office on Feb. 3 — the day before GM was scheduled to release its fourth-quarter and full-year financial results for 2014 — the automaker already signaled that it expected to consider whether, how and when to return more capital to shareholders, either through buybacks, a dividend increase or both.

The next day, GM confirmed that it planned to up the dividend on its common stock 20 percent to 36 cents per share. Wilson says the move is a response to his overture; a GM insider close to the situation insists it's not, adding: "Don't even think about connecting Harry to the dividend move."

The optics are hard to ignore. With GM signaling that it expects to make more shareholder-enriching moves later in the year — once it gets clarity on the ongoing Justice Department investigation and potential litigation costs associated with last year's recall scandal — any move in that direction could be seen, fairly or not, as a credit to Wilson.

GM has been here, and worse, before. In 2006, Las Vegas billionaire Kirk Kerkorian amassed nearly 10 percent of GM and pushed his guy, Jerry York, onto the board; the two tried to force GM into a tie-up with Carlos Ghosn and Renault-Nissan before giving up.

In 2007, a Russian oligarch, Oleg Deripaska, acquired 5 percent of GM and threatened to amass more until the Bush White House intervened with Moscow, according to a former ranking GM executive source close to the situation at the time.

The difference: GM today is stronger and more financially sound, meaning it is obliged to play by market rules as they are — not as they might want them to be.

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Daniel Howes' column runs Tuesdays, Thursdays and Fridays and can be found at