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The next phase of professional activism


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Note: The version of the article below is a February 11, 2015 revision of the original that had been distributed to Forum participants.


Source: The New York Times | DealBook, February 10, 2015 article

Hedge Fund-Backed Investor Puts Himself Up for G.M. Board

By Michael J. de la Merced and Bill Vlasic   February 10, 2015 9:37 am

Harry J. Wilson in 2010, when he ran for New York State comptroller. He is seeking a G.M. board seat in an effort to persuade the company to buy back at least $8 billion in shares by 2016. Credit Michael Appleton for The New York Times.

Updated, 9:28 p.m. | Six years ago, Harry J. Wilson was enlisted by the Obama administration to help overhaul General Motors as part of a taxpayer-financed bailout.

Now, the former Goldman Sachs financier is trying to change the automaker once again — but this time with four big hedge funds on his side.

On Tuesday, Mr. Wilson put himself up for a seat on the G.M. board, as part of a campaign to persuade the company to buy back at least $8 billion worth of shares by next year.

The potential board fight is the latest corporate challenge for General Motors as it wrestles with the biggest safety crisis in its history and the recall of tens of millions of vehicles.

While the company has regained financial strength since the bailout and its return to the public markets in 2010, some investors have complained that it has done little for them.

Backing Mr. Wilson are big hedge fund magnates like David A. Tepper of Appaloosa Management and J. Kyle Bass of Hayman Capital Management. (Mr. Bass has been calling for big share buybacks for months.) All told, the investors own a stake of roughly 2 percent. As part of their arrangement, Mr. Wilson will receive a share of the profits that the investment generates.

Shares of General Motors rose more than 4 percent on Tuesday.

In an interview, Mr. Wilson conceded that the company had made huge strides since the bailout, particularly in changing a corporate culture he derided as broken. But under a succession of leaders, including its current chief executive, Mary T. Barra, the automaker has presided under a largely moribund stock price.

“There’s been growing frustration that’s been coming together,” he said. “We want to help the company go from where it is today to where it should be, a world-class performer on any metric.”

Mary Barra, chief executive of General Motors. Credit Tony Ding/Associated Press.

Since its bailout, General Motors has steered a conservative financial course. It has argued that it needs what it has called a “fortress balance sheet,” one that includes $25 billion in cash on hand.

Some of that money has gone toward the costs of the safety crisis. For more than a decade, company officials knew about but failed to fix defective ignition switches in millions of small cars. To allay fears that it was neglecting safety issues, General Motors issued more than 80 recalls last year covering nearly 30 million vehicles. It spent about $3 billion in 2014 to compensate accident victims, fix recalled cars and trucks, and reorganize its vast engineering operations and safety teams.

The recalls took a heavy toll on G.M.’s bottom line. Last week, the company reported net income for 2014 of $2.8 billion, a 31 percent drop from $3.99 billion the previous year.

In a statement, General Motors said that it would evaluate both of Mr. Wilson’s proposals. It added that it had recently announced plans to raise its quarterly stock dividend by 20 percent and would announce other plans to pay out to investors in due course.

But Mr. Wilson, 43, argued that the company had been too conservative in the handling of its finances and had failed to improve on other financial metrics, like operating margin. He said that he had publicly warned G.M. about the potential of an activist investor emerging as early as the fall of 2013.

Last month, he approached Ms. Barra at an investor conference, telling her that he had ideas to share. When they met last week, he laid out several initiatives aimed at bolstering operating performance and paying out more to shareholders. He also disclosed that he wanted a seat on the board to serve as a representative for shareholders.

Though G.M.’s statement suggested that Mr. Wilson’s move was sudden, he contended in an interview that he had tried three times to extend the deadline for nominating directors beyond Monday night at midnight.

An industry analyst said in a research note that the company might decide on a smaller buyback than Mr. Wilson and his investment group have requested.

“G.M. still needs to work through recall litigation and the U.A.W. negotiations,” Brian Johnson, an analyst with Barclays, said, referring to the United Automobile Workers union. “However, we believe there is a fair likelihood that G.M. enacts some sort of share buyback (perhaps $4 billion) to show investors that it is enhancing shareholder value.”

In some ways, Mr. Wilson’s move harkens back to the beginnings of his career as a financier. Before he joined the Obama administration’s auto task force, he had worked at Goldman Sachs and the hedge fund Silver Point Capital, where he became an expert on investing in distressed companies.

During his time in Washington, he served as the team leader for G.M., supervising the overhaul of the automaker. It was Mr. Wilson who helped devise the administration’s tactic to lend the company the billions of dollars it needed to stay afloat during bankruptcy in exchange for a stake that would be sold down over time. (The government sold the last of its shares at the end of 2013.)

Since leaving the task force, Mr. Wilson ran, unsuccessfully, as the Republican candidate for New York State comptroller before setting up the Maeva Group, a corporate turnaround consulting firm. That latest phase of his career has put him in touch with several notable activist investors, including the billionaire Daniel S. Loeb, who had him installed on the boards of Yahoo and the art auction house Sotheby’s.

Even six years after the auto bailouts, however, Mr. Wilson has remained bothered by how slowly G.M. has been recovering, according to people close to him.

“Harry’s a perfectionist,” said one acquaintance. “It was frustrating him that G.M. wasn’t getting A-pluses across the board.”

Mr. Wilson himself did not shy away from the classroom metaphor in discussing how much room G.M. has to improve.

“They went from a big red ‘F’ before the crisis to much better performance, but they’re not at the ‘A’ they’re capable of,” he said. “I think Mary has the potential to get them there, but I think she needs some help.”

Correction: February 11, 2015
An earlier version of this article misidentified the Barclays analyst who wrote about the possibility of a stock buyback by General Motors. He is Brian Johnson, not Andrew Smith.


Copyright 2015 The New York Times Company


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