General Motors (IW 500/5) on Monday pledged to buy back $5 billion in shares in a deal with an activist investor who has agreed to drop his bid to join the automaker's board.
GM said it plans to return all excess free-cash flow to shareholders while it maintains an investment-grade balance sheet supported by a target cash balance of $20 billion.
The largest U.S. automaker said that its improving business performance helped to pave the way for a new capital allocation plan as part of a deal with an investment group led by Harry Wilson, a restructuring specialist who called for $8 billion in share buybacks.
Wilson, representing holders of 2.1% of GM shares, agreed to withdraw his nomination for election to the board of directors at the company's 2015 annual meeting and to withdraw his shareholder proposal.
"GM is moving ahead with its comprehensive capital allocation framework, and constructive dialogue with our shareholders has helped ensure that we are addressing these key initiatives with the appropriate level of clarity and transparency. We will continue to be engaged with all of our shareholders and to be responsible stewards of our owners' capital," GM chief executive Mary Barra said in a statement.
Wilson called the deal a "win-win outcome that includes a thoughtful approach to critical capital allocation issues and other important measures to increase long-term shareholder value."
The GM share repurchase plan will begin immediately and conclude before the end of 2016.
In February the company said it would increase its quarterly stock dividend to 36 cents per share, from 30 cents, effective in the second quarter of 2015, which would result in an expected dividend payout of approximately $5 billion through the end of 2016.
Shares in GM jumped 2.7% to $34.82 in pre-market trade on the New York Stock Exchange.
Copyright Agence France-Presse, 2015