DETROIT General Motors Co. said Monday it would launch a $5 billion share buyback in an effort to avert a proxy war with dissident investors, and detailed a plan that could allocate investors even more cash.
GM said it had reached a deal with an investor group that averts a proxy fight over its balance sheet and governance. As part of the agreement, investment-group-leader Harry Wilson will drop his effort to get a seat on GM's board.
GM shares were up 2.4 percent at $37.42 in afternoon trade.
Wilson, a former member of the Obama administration auto task force, was instrumental in GM's federally financed bankruptcy restructuring in 2009.
On Monday he praised the company's capital plan, which offers investors a more transparent view of GM's cash investment proposals than previously disclosed.
GM also confirmed Monday it will boost its quarterly dividend to 36 cents a share from 30 cents previously. It had disclosed plans to raise its dividend last month.
In all, the actions should return about $10 billion to shareholders through 2016.
The auto maker outlined its plans for managing cash as part of a deal that averts a battle with an investor group that last month challenged its hoarding of cash in what the company called a “fortress balance sheet.”
Some investors had expressed frustration with that approach as GM shares traded in a range near $33 a share, the price set at its post-bankruptcy initial public offering in 2010. In premarket trading Monday, shares were up 2.6 percent at $37.78.
GM had built up roughly $25 billion in cash as its sales and profits rebounded following its 2009 government-led bankruptcy.
But from now on, GM said it would aim to keep $20 billion in cash on its balance sheet and return free cash flow beyond that to shareholders. The framework depends on GM maintaining an investment grade balance sheet.
INVESTORS COULD GET MORE CASH
GM Chief Financial Officer Chuck Stevens said $20 billion in cash should be enough to allow the automaker to manage through a recession, and he said GM would try to work that minimum cash level down over time.
That suggests the company could eventually return more cash to investors than outlined on Monday.
GM said it would aim to generate a minimum 20 percent return on invested capital when it spends on new model programs and other investments. The company said it achieved 20.8 percent return on invested capital in 2014, excluding recall costs, and a 20.2 percent return in 2013.
Wilson praised GM’s agreement to provide details on its policies for investing capital in the coming years.
“The real question is how does the company govern itself in a way that maximizes shareholder value,” Wilson told Reuters.
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 said any significant new share repurchases 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 relating to a deadly ignition switch defect in older cars. The company faces a separate and potentially costly legal challenge in U.S. bankruptcy court connected to the delayed ignition switch recalls.
A group of hedge funds led by 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.
Last week, another big GM shareholder, Warren Buffett, told CNBC 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." He was referring 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 he was concerned that a proposed $8 billion buyback was premature, but didn't oppose a smaller return of cash.
(Editing by Bernadette Baum and Alden Bentley)