|
 Barra and GM's chief financial officer Chuck Stevens have signaled
they will recommend returning more of the cash once the Detroit
automaker knows how much it will have to spend to resolve legal
issues related to the company's recalls of millions of cars equipped
with defective ignition switches. That includes a U.S. Justice
Department criminal investigation.
Several shareholders contacted by Reuters said they agree with
former U.S. auto task force member Harry Wilson and his hedge fund
partners that GM has more cash than it needs. GM exited bankruptcy
in 2009 with little debt, and has since profited as demand for cars
and trucks in the U.S. has roared back from the 2008-2009 recession.
"Having a very, very strong balance sheet is wise, but we're beyond
wisdom and into excess capital," said Grant Taber, portfolio manager
at Westwood Management in Dallas, which owns GM shares.
Wilson and a group of hedge funds are pressing GM to buy back $8
billion in stock over the 12 months following its June annual
meeting, and agree to give Wilson and possibly other shareholders
seats on its board. The group includes David Tepper's Appaloosa
Management and three other hedge funds: Taconic Capital Advisors,
Hayman Capital Management and HG Vora Capital Management, which
together own about 31.2 million shares, or 1.9 percent of GM stock.
GM told Reuters on Thursday it has turned to Morgan Stanley and
Goldman Sachs Group Inc to give advice on how to respond to the
demands of Wilson's group.
The company hasn't discussed its position regarding Wilson's
proposals since revealing them on Tuesday. It said then that its
goal was maximizing shareholder value through both boosting its
share price and returning cash via dividends and share buybacks.
Others are worried about whether Wilson and his group really have
GM's long-term interests at heart.
"A short-term view of finances and decisions based on that can be
dangerous," said Vikas Sehgal, head of automotive at investment bank
Rothschild.
David Kudla, CEO of Mainstay Capital Management in Grand Blanc,
Michigan, said investors should leave it to Barra and her team to
decide how to spend GM's cash.
"Are these hedge fund managers thinking about GM over the next 10
years or the next 10 weeks?" said Kudla, whose firm owns GM stock
and has many GM retirees as clients.
Standard & Poor's, the only one of the three major rating companies
to give GM's credit an investment grade rating, said on Wednesday
that giving back $8 billion to shareholders could be detrimental to
credit quality. The company did not change its outlook for GM.
Barra and GM's independent directors could take until the June
annual meeting to craft a response to the challenge from the hedge
funds that goes beyond the company's Feb. 4 decision to recommend
increasing the common stock dividend by 20 percent.
While GM faces the potential for a public relations battle with
dissatisfied shareholders, many big investors in its stock haven't
been heard from, including Warren Buffett's Berkshire Hathaway.
Berkshire is one of GM's largest shareholders, with 2.5 percent of
the shares as of last Sept. 30. Buffett's assistant did not respond
to questions asking for the firm’s position on the matter.
A spokesman for The Vanguard Group Inc, GM's fourth largest
shareholder with a stake of 4 percent as of last September, declined
to comment. A spokeswoman for Harris Associates LP, GM's second
largest shareholder with a stake of almost 4.8 percent as of the end
of last year, didn't respond to a request for comment, while a
spokeswoman for State Street Global Advisors, GM's fifth largest
shareholder with a stake of 3.5 percent as of last September,
declined to comment.
[to top of second column] |
A spokeswoman for the largest shareholder, a United Auto Workers
healthcare trust for retired workers, had no comment on Wilson's
proposal. Brock Capital Group LLC, a fiduciary that manages the
trust’s GM shares, also declined to comment.
GM shares are up 6.9 percent in the past 12 months, compared with a
14.8 percent rise by the benchmark Standard & Poor's 500 Index.
Some investors and analysts say GM could defuse the challenge from
Wilson and his backers by offering shareholders a smaller sum --
possibly $4 billion -- or spread a larger payout over a longer time.
A bigger payoff can't come soon enough for some investors, however.
"Sitting around with $25 billion in your pocket getting zero percent
on it just doesn't make any sense to me," said Gary Bradshaw,
portfolio manager with Hodges Capital in Dallas, which bought GM
stock on the same day it said it would hike its dividend. He
supports adding Wilson to the GM board. The yield on the benchmark
10-year U.S. Treasury bond is currently just under two percent.
Scott Schermerhorn, managing principal with Granite Investment
Advisors in Concord, New Hampshire, which has GM as one of its
largest holdings, called talk of not returning more money to
shareholders "loony tune."
"That is our money and if they really don't have a good use for it,
it should be coming back to us," he said, adding he was open to
adding Wilson to the GM board.
GM does have plans for a good chunk of its cash.
In addition to recall-related litigation costs, Stevens last month
laid out other calls on the automaker's cash in 2015, including $9
billion in capital spending, about $2 billion for dividends, $1
billion for restructuring and an estimated $1.2 billion of remaining
recall costs.
Some investors said GM's cash generation is strong enough to meet
its obligations and make shareholders happy.
"What matters is that the stock is cheap and you can create a ton of
value by using excess capital that's available right now," said
Michael Kon, senior analyst with Golub Group, which owns GM shares
in its equity mutual fund. Kon declined to say how his firm would
vote on Wilson's proposals, but called his plans a positive
development.
John Smith, a former group vice president at GM who ran global
product planning, has little sympathy for those who want GM to
sacrifice a chunk of its cash.
"You can almost not have enough cash," he said. "GM had run out of
money by the time it got to the second half of '08 so who would want
to repeat that?"
(Additional reporting by Bernie Woodall in Detroit, Ross Kerber in
Boston and Luciana Lopez in New York. Editing by Joe White and John
Pickering)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
