Is the fix in? General Motors is acting like it faces a major decision in responding to the self-nomination of Harry Wilson for its board of directors. Wilson was one of the key members of President Obama’s Auto Task Force, and purports to be acting at the behest of hedge funds who want GM to spend the “cash hoard” that was made possible by US taxpayers.
Ironically, Wilson was one of the people who determined how much of a “hoard” GM would accumulate, an amount he now criticizes as being excessive. During, and just prior to, GM’s bankruptcy process, taxpayers supplied about $50 billion to “invest” in the company. Canadian taxpayers chipped in about $10 billion while GM had its balance sheet cleared of about $30 billion of debt. The liabilities owed to the politically-favored UAW remained intact.
Why did the Auto Task Force that Wilson served believe that GM needed such a large cash reserve if he now feels that having such a reserve equates to “hoarding?” Yes, major automakers need large cash reserves to ride out cyclical downturns. But the large taxpayer-supplied cache enabled UAW interests to be protected while discouraging private investors from entering competing bids to the Obama Administrations’ “offer” to “buy” GM’s assets in what is known as a 363 bankruptcy.
So now GM has about $27 billion of cash left on its balance sheet. Belying claims by GM that it has a “fortress” balance sheet, the company has about $47 billion of debt and UAW pensions are underfunded by about $24 billion. Enter Harry Wilson who wants that cash to be depleted even faster with a stock buyback worth $8 billion so that he and his hedge fund cronies can cash in. Coincidentally, the UAW can sell its roughly $5 billion worth of GM shares at a premium. Crony Capitalism at its worst!
The obvious concern is that GM would now be putting a key Obama operative on its board after having the government supposedly get out just about a year ago. That certainly may not be in the best interests of shareholders. Wilson’s past UAW-friendly stance should not be ignored. A look at Wilson’s other more recent forays is instructive.
On top of his UAW-favoring work on the Auto Task Force, Wilson was rewarded with a lucrative agreement from the Teamsters. Wilson represented union interests in restructurings for YRC Worldwide and Hostess. High union labor costs were the primary reason Hostess went through bankruptcy with shareholders being wiped out. YRCW survived with shareholders practically being wiped out as they settled for a 1 for 300 reverse stock split as the Teamsters and Harry Wilson fared much better.
Wilson’s questionable Teamsters’ relationship is detailed on the Teamsters for a Democratic Union site. Here are some excerpts from their article entitled Hoffa’s Concession Tycoon:
January 3, 2014: Meet Harry Wilson. Hoffa appointed this Wall Street tycoon to the YRC Board of Directors. Now Wilson is making millions on the YRC concessions deal.
Hoffa appointee Harry Wilson has received, or stands to receive, as much as $15 million for dealing with distressed companies that bargain with the Teamsters since he was first tagged by James Hoffa to work on YRCW’s 2011 restructuring. This includes a $5.5 million bonus if YRC members approve the concessions and a bank deal is consummated.
On February 28, 2011, Hoffa announced that Wilson was joining the YRCW restructuring efforts on behalf of the Teamsters to “break the logjam between the company and the lenders’ group.” Wilson also had a role in the Hostess restructuring, with MAEVA reportedly receiving $200,000 per month over an extended period. In October 2013 MAEVA filed papers requesting payment of $3.5 million in the bankruptcy court in the case. If Hostess had survived, the company would have been required to pay MAEVA’s fees.
Wilson is paid $175,000 per year as a member of YRCW’s board.
During the November meeting of Teamster local officers in Dallas, YRCW’s CFO, Jamie Pierson, told the Teamster officials that they had evaluated various restructuring experts and determined that MAEVA was the best resource to lead the restructuring.
On February 1, 2013, the YRCW Board engaged fellow board member Wilson to lead a strategic initiative related to restructuring again the company’s deals with the banks. The engagement agreement (contained in SEC filings) explicitly states that the IBT approved of this arrangement! According to the contract Wilson is receiving $250,000 per month and is eligible to receive a completion bonus not to exceed $5.5 million if members approve the concessions and the deal is consummated. Wow.
It seems odd for a public corporate board to select one of the directors to function as the company’s investment banker. This is complicated by the fact that Wilson was appointed by the IBT in part to protect the interests of Teamster employees. But the deal he has engineered requires those Teamsters to accept new concessions. Add to that the extra $5.5 million Wilson has riding on the concession vote. That’s quite a web of potential conflicts.
Now Wilson, a former Auto Task Force member turned Teamster “concession tycoon,” is using his inside knowledge and political connections to personally cash in. Based on his past actions, the UAW may also stand to benefit. GM, meanwhile, seems to be motivated more by politics than profits as it promotes money-losing electric cars like the Chevy Volt as it increases spending and raises debt levels. The recent announcement of $9,000 bonuses for UAW members who helped President Obama get reelected gives more evidence of how GM’s priorities are in line with the White House’s.
GM CEO, Mary Barra, should strongly object to the appointment of Harry Wilson to the GM board. If she does not, it may just be because the White House’s influence remains as the interests of the politically-powerful UAW and Obama’s labor allies are taking priority over the long-term financial health of General Motors.
Mark Modica is an NLPC Associate Fellow.
Watchdog Criticizes Harry Wilson GM Buyback Scheme as Favor to UAW