Huge unreturned GM cash coffer may entice activist investors

Article by Anita Panait, on December 2, 2013

Activist investors may target General Motors Co. if the US carmaker fails to quickly return cash to shareholders from what it dubs as its “fortress balance sheet.” The United States Treasury Department recently announced that it expects to sell its remaining 31.1 million GM common shares by end of 2013, depending on market conditions, effectively ending the government's involvement in the carmaker.

According to Harry J. Wilson, a member of the US auto task force that helped rebuilt GM in its 2009 bankruptcy, the government's departure makes GM a potential target for activist investors, who may push the carmaker to pay out some of its $26.8 billion in cash via a dividend or stock buyback. 

“Any company that isn’t efficient about capital allocation is a target for activists,” remarked Wilson, who is currently a restructuring adviser at Maeva Group LLC. He noted that GM has a "huge cash hoard" and is generating more money each year, "so they need to be thoughtful about that.”

According to data compiled by Bloomberg, GM is trading at a valuation cheaper than 97 percent of its rivals. Analysts expect GM to generate $5.4 billion in free cash flow in 2014, which is double the number posted in 2012.

A push to return some cash to shareholders would be in dispute with some goals of chief executive Dan Akerson, which include maintaining spending on new products and buying back preferred shares left after the bankruptcy. GM spokesman Dave Roman said in an e-mailed statement to Bloomberg that the carmaker expects to continue to reinvest in the business, maintain its fortress balance sheet and return cash to shareholders.

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