General Motors will be a susceptible target for activist investors if the automaker does not return money to shareholders from its “fortress balance sheet”, according to a report from BusinessWeek. For those not immediately versed in investment lingo, an activist investor is an individual or group that purchases large numbers of a public company’s shares and/or tries to obtain seats on the company’s board with the goal of effecting a major change in the company.
The U.S. Treasury Department has plans to sell its remaining shares in GM and the automaker also plans to convert its Series B preferred stock into common stock before the end of the year. The former could possibly drive activist investors to push GM into paying shareholders with its $26.8 billion cash pile through a dividend or stock buyback.
“Any company that isn’t efficient about capital allocation is a target for activists,” said Harry J. Wilson, a member of the U.S. auto task force that helped restructure GM amid its bankruptcy in 2009, to Autoweek. “GM has a huge cash hoard and they are generating lots more cash each year, so they need to be thoughtful about that.”
A push from investors to hand out some of its cash to shareholders could put a damper on CEO Dan Akerson’s plan of continuing to invest in future product and buying up desired shares left from the bankruptcy.
GM spokesman David Romas told BW in an emailed statement that the company is planning to pay the shareholders back without activist investor interference, while also maintaining its fortress balance sheet (its cash stockpile) and investing in the future.
“We expect to continue to reinvest in the business, maintain our fortress balance sheet and return cash to shareholders.” Said Romas.
According to BW, GM may make an announcement on its plans regarding some kind of a shareholder dividend in the beginning of 2014, though activist investors could step in if a decision is not made soon enough.