Surprise candidate for GM board wants share repurchase

In a surprise move, a group of hedge funds holding 2.1% of General Motors (GM) stock is backing a candidate for the board who will support an $8 billion share repurchase program the group wants, according to a statement on Tuesday from GM.

The hedge funds — Taconic, Appaloosa, HG Vora and Hayman — together own approximately 34.4 million GM shares. They are backing board candidate Harry Wilson, who was a member of the Obama auto industry task force that supervised the GM and Chrysler bankruptcy reorganizations in 2009.

GM said Wilson met with CEO Mary Barra on Feb. 3 about other matters and disclosed then his intention to nominate himself and identified his backers. GM said Wilson disclosed he has "a fee arrangement under which he will receive a percentage of the group's profits from their investment in GM."

Wilson told CNBC in an interview that he thinks GM is undervalued and hasn't done a good job returning cash to shareholders.

A buy-back is a way to distribute company profits to shareholders, boosting the share price as it creates new demand for shares. GM currently isn't buying back its shares. The stock closed Tuesday up 4.2%, or $1.52, at $37.52.

Industry analyst Joe Spak at RBC Capital management said in a note to clients, "GM has already indicated they are stepping up their cash returns, having just increased the dividend 20%, and suggested that more cash could be returned later in the year. ... The (repurchase) proposal is essentially calling for GM to accelerate the pace."

GM said it expects to increase its second-quarter common stock dividend from 30 cents to 36 cents per share.

The proposal would commit the company to completing an $8 billion stock repurchase within a year of this year's annual meeting, expected in June.

GM said Feb. 4 that its net income in the fourth quarter was $1.1 billion, up 22.2% from a year ago. Full-year net income was $2.8 billion, after $2.8 billion in recall costs globally and $1 billion in restructuring costs.

GM indicated the move was a surprise, saying in its statement that it "has had regular contact with some of the investors identified in the group, including as recently as after its earnings announcement on Feb. 4, and at no time in discussions with GM have they indicated an interest or intent to nominate directors to the GM board."

The automaker said it "will evaluate the proposed director nominee based on the criteria set forth in the company's Corporate Governance Principles and Director Qualification Standards and make a recommendation (to shareholders) based on the best interests of all shareholders."