General Motors rejects investor plan for 2 stock classes
- Author: Zachary Reyes Mar 29, 2017,
Mar 29, 2017, 2:07
(Adds details, GM's comment) March 28 (Reuters) - David Einhorn's hedge fund Greenlight Capital Inc urged General Motors Co to split its common stock into two classes, a proposal that was swiftly rejected by the carmaker.
"As significant, long-term shareholders, we believe in General Motors' strong earnings potential", Einhorn said in a news release.
Here's an alternative plan for unlocking value from GM: Wait for the next downturn.
"GM has a highly experienced Board with relevant expertise and capabilities in key areas that align with the company's strategic direction", the company said in a statement.
The Dividend Shares: GM would continue to pay quarterly dividends at the current annual rate of $1.52 per share, but the dividends would now be paid on the "Dividend Shares" instead of the existing common stock. Greenlight owns 0.88 per cent of gm shares. The payout, the dividend yield, which is more than 4 percent ... puts it among the highest.
Einhorn, the founder of $9 billion hedge fund Greenlight Capital, wants shareholders to pressure GM to offer one class of stock that would receive the auto manufacturer's current dividends and another that would be more growth oriented.
GM said after mulling Einhorn's ideas for some seven months - while at the same time negotiating the sale of German Opel brand and Britain's Vauxhall to France's PSA Group (PEUP.PA) - and discussing them with top executives, the board and ratings agencies, it considered the plan too risky. "It doesn't change anything else about what's going on at the company", he said. GM said the dividend shares would not help it sell more cars or drive higher profitability or generate more cash flow and it does not address factors in the automotive industry that have affected GM's stock price.
GM, in a statement, said it rejected the proposal because it "creates an unacceptable level of risk and would not serve the best interests of GM shareholders".
Greenlight Capital said the move would help the carmaker improve its financial flexibility and boost the stock's value. "We believe it would add unneeded complication and confusion for shareholders, while offering little value-add to GM's operational performance", Efraim Levy, equity analyst, wrote in the note. The company intends to use these funds to accelerate share repurchases, subject to market conditions, increasing its total 2017 cash returns to shareholders to approximately $7 billion, comprising approximately $2 billion of dividends and approximately $5 billion of share repurchases. GM stock was up almost 3 percent at $35.74 in afternoon trading. In 2015, the company announced a $5-billion share buyback to end a proxy contest where investor Harry Wilson, who led the government's bailout of the automaker, was pushing for a board seat on behalf of investors.