General Motors announced plans Monday to return $5 billion to shareholders through stock buybacks, concluding an aggressive shareholder campaign. The move is expected to quell tensions with activist investor Harry J. Wilson, who helped restructure GM after its taxpayer-funded bailout in 2009.
With backing from four hedge funds, Wilson sent a letter to GM in February asking the automaker to buy back $8 billion of its own stock, at the same time announcing his intention to seek a seat on the board of directors. He argued that the company was undervalued and should reward its shareholders with part of its $25 billion in cash reserves. Wilson and his allies held a combined 2.1 percent of GM’s stock.
Wilson’s entreaty was met with mixed responses. United Auto Workers President Dennis Williams, whose union controls the largest portion of GM stock, expressed concern that Wilson’s request was too steep. Ratings firm Standard & Poor’s called Wilson’s campaign “detrimental to credit quality.”
Warren Buffett, owner of a significant slice of GM through his company Berkshire Hathaway, came out against the plan, arguing its only purpose was “a little pop in the stock.”
Companies often cannibalize their own stock to increase earnings per share, a measure by which corporate observers size up business health. Repurchases don’t affect earnings, but they do reduce the number of outstanding shares. Stock owners appreciate seeing ownership concentrated in fewer hands.
GM said Monday that the $5 billion repurchase agreement would be concluded by year-end 2016. In a separate announcement, Wilson expressed satisfaction over the agreement, calling it "a win-win outcome.” GM CEO Mary Barra nodded to "constructive dialogue with our shareholders."
The company underscored its repurchase announcement with plans to invest $9 billion in future growth, promising more vehicle launches in coming years. The company had previously announced a 20 percent increase to its dividends, which are expected to rise to 36 cents per share.