David Einhorn, head of Greenlight Capital, wants GM to split its stock into two classes. He believes the move would nearly double the company's stock price.
(This story has been updated.)
General Motors Co. is heading for a showdown at next month’s shareholders meeting over a proposal from a New York-based hedge fund, Greenlight Capital, that is asking GM to eliminate the dividend on the existing GM common stock and issue a new, separate dividend security. It would create two classes of stocks.
The clash over the Greenlight proposal is highlighted by rival slates of directors.
One slate includes the incumbents on the company’s board while the opposing slate was nominated by Greenlight to promote its proposal. GM shareholders meeting is set for June 6 in Detroit.
Greenlight Capital turned up the pressure on GM, posting credit ratings documents that it claimed the automaker inappropriately changed to undermine the hedge fund’s proposal to create two classes of GM stock.
(GM squashes proposal to split stock into two classes. Click Here for the story.)
Greenlight, which owns 3.6% of GM shares, believes its dual share plan would boost GM’s value by creating a dividend class and a regular stock class known as capital appreciation shares.
The fight over seats on the GM board comes as GM is facing pressure on multiple fronts such as softening market for new vehicles and continuing political, legal and economic difficulties in Latin America. At the same time, GM is spending heavily to develop new forms of mobility, including autonomous vehicles, to put the company in the position to meet future challenges.
“The global environment is getting tougher,” GM CEO Mary Barra said during a conference call last week with analysts and journalists
GM Chairman and CEO Mary Barra has said the company doesn't believe the two-stock plan is viable.
Chuck Stevens, GM’s chief financial officer, also told analysts last week that GM expects to spend $5 billion on stock buybacks in 2017. GM re-iterated this week it is asking shareholders to reject the Greenlight proposal.
(Click Here for details about GM’s latest expansion with Maven.)
“After an objective and thorough review over a seven-month period, GM’s Board determined that Greenlight’s proposal creates an unacceptable level of risk, would not create the value Greenlight indicates, and would be detrimental to GM shareholders,” GM said in a statement.
GM also said that voting for any of the Greenlight candidates represents an endorsement of Greenlight’s flawed plan. “The presence of any of the Greenlight candidates on the Board would undermine our ability to move forward with focus and clarity on the right strategic imperatives that are critical as we navigate this period of unprecedented industry change,” the statement added.
In addition, Greenlight’s definitive proxy suggests Greenlight has met with two of the rating agencies to make its case directly and the rating agencies’ views have not changed. The rating agencies issued their report after Greenlight made its proposal public and posted its investor presentation.
A Greenlight spokesman said the fund has not a formal meeting with rating agencies. However, the agencies issue their report based on the proposal Greenlight made available to the public by posting it on its website.
“It is also clear from the public statements made by the rating agencies that they understand all aspects of the proposal and that it would represent a credit negative if implemented. Any suggestion to the contrary is false,” GM said.
(To see more about Mark Reuss’ claim that GM will build the first profitable EV, Click Here.)
Ratings agencies have sided with GM by saying that the dividend class functions like a debt security, which could affect GM’s credit rating.