Einhorn's Greenlight Capital urges GM to create two share classes
A large shareholder of General Motors Co. stock said Tuesday it has a plan it believes would "unlock substantial value" for GM shareholders by moving the Detroit automaker's common stock into two classes: one that would receive dividends and another that would participate in earnings, cash flow and future growth.
The auto giant said Tuesday that it has rejected a proposal from Einhorn's Greenlight Capital to split its stock into two classes.
GM said its board of directors has carefully considered the plan but has rejected it, saying it creates "unacceptable risks".
"Our plan would unlock significant value and lower GM's cost of capital", Einhorn said in a statement.
"GM's dividend is not respected by the market", Einhorn said Tuesday in slides posted on the hedge fund's website.
- Einhorn also has said he wants to nominate directors to GM's board.
Since it returned to the market as a public company in November 2010 after its bankruptcy, GM's stock has dramatically underperformed the wider market.
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The shift "could lead us to negatively revise our assessment of the company's financial risk profile" because the firm would lack flexibility to eliminate or reduce the dividend if need be, S&P said.
GM has hired Goldman Sachs and Morgan Stanley to push back against Einhorn's proposal, said a person with direct knowledge of the matter.
Earlier this year, prior to the Opel/Vauxhall announcement, GM announced that it expects to deliver full-year 2017 EPS-diluted and EPS-diluted-adjusted of $6.00-$6.50; maintain or improve EBIT-adjusted and EBIT-adjusted margins; and generate higher revenues, compared to 2016. It also wants GM to create capital appreciation shares that would trade separately from the dividend shares and use existing common stock so that shareholders would benefit from earnings, cash flow, share buybacks and growth in excess of the dividends.
GM said the Greenlight proposal would not help the company sell more cars or drive higher profits, "nor would it address the fundamental sector factors affecting GM's stock price".
He also said Greenlight had offered to go to credit rating agencies to confirm that there would not be a negative impact on GM's credit rating as a result of Greenlight's plan. Among the risks are the potential loss of GM's investment grade credit rating, unknown market demand for the new securities that could depress prices, and corporate governance challenges that would come from having two classes of stock with competing objectives. The new authorization brings the total share repurchase program to $14 billion since it was announced in March 2015.
Greenlight Capital owned about 0.88 percent of General Motors' shares as of December 31, according to Reuters data. Ford Motor Co.'s stock, for instance, is trading at almost ten times earnings, while GM is at just under 5.8 times. The gross proceeds of the offering are expected to be approximately $9.3 million.
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Mar 25 2017