Science

GM rebuffs two-class share plan from Einhorn's Greenlight Capital

GM rebuffs two-class share plan from Einhorn's Greenlight Capital

Investor David Einhorn unveiled a proposal yesterday to try to boost General Motors share price by creating two classes of stock, signalling a possible battle at the carmaker's annual meeting.

General Motors also said it intends to recommend that shareholders reject Greenlight's slate of four board nominees, saying "General Motors has a highly experienced Board with relevant expertise and capabilities in key areas that align with the company's strategic direction". The company said Einhorn's plan "creates an unacceptable level of risk and would not serve the best interests of GM shareholders".

Einhorn has a history of pushing unique capital plans at big US companies and in 2013 urged Apple Inc to issue preferred stock with a perpetual 4-percent dividend.

"GM's investor base has a suboptimal combination of yield-oriented and value-focused shareholders with divergent investment objectives", he says. "And further, they're only paying out about a quarter of their earnings", Einhorn said.

- Einhorn also has said he wants to nominate directors to GM's board. The firm has been involved with GM for some time, buying the stock in 2011, selling it when the company faced problems with an ignition switch recall, and then buying back in about a year later.

"Moody's believes that the Greenlight proposal would reduce financial flexibility and increase credit risk", Moody's Investors Service wrote in a note.

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GM's assessment of the Einhorn appraisal received support from S&P Global Ratings, which warned a dual-class could warrant a ratings cut below investment grade.

The Company's diverse shareholder base now consists of a mix of value-focused and income-oriented investors united by their confidence in GM's prospects, but with different investment objectives. The plan would lower the.

"As Greenlight has already acknowledged, the proposed dual-class common stock structure would have no positive effect on GM's underlying business or cash flows, and therefore would not create additional intrinsic value", GM said in a statement.

Greenlight Capital owned about 0.88% of General Motors' shares as of December 31, according to Reuters data. Today, GM's stock increased $1.00, or 2.85%, to $35.71 per share in midday trading.

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. The Dividend Shares would be distributed to GM's existing shareholders at no cost. The new authorization brings the total share repurchase program to $14 billion since it was announced in March 2015.

At its current trading value, the Company's price/earnings ratio is approximately 5.6x and ranks as the lowest price/earnings ratio among all S&P 500 companies. The company plans to return about $7 billion in cash to shareholders this year.


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