Einhorn Ratchets Up His Pressure on GM -- 3rd Update
April 12 2017 - 12:03PM
Dow Jones News
By Anne Steele and Mike Colias
Investor David Einhorn escalated his pressure on General Motors
Co., nominating three candidates Wednesday to the Detroit auto
maker's board of directors.
In a public filing, Mr. Einhorn's hedge fund Greenlight Capital
Inc., which is pressing GM to create two classes of common stock
that would separate its dividend from its operations, said the
nominees are needed "to help re-energize the board and bring
additional focus to closing the valuation gap in GM's stock."
GM has rejected the stock-split proposal, saying it "creates an
unacceptable level of risk," including the potential loss of its
investment-grade credit rating, which it spent years restoring
following the auto maker's 2009 bankruptcy. GM said Wednesday its
evaluation of the proposal remains unchanged.
All three major ratings firms last month issued reports on the
Greenlight proposal saying it would be credit-negative to GM and
could lead to a downgrade. Moody's concluded in its evaluation that
splitting the stock would saddle GM with a "sizable cash-outflow
burden that would diminish the financial flexibility necessary in
the competitive and highly cyclical auto market."
GM said credit-rating firms' public statements on the Greenlight
proposal "clearly indicate that they understood the idea in all its
facets."
Greenlight asserted Wednesday that GM mischaracterized to the
ratings firms Mr. Einhorn's proposal and denied the hedge fund's
request to pitch the idea directly to the agencies. Greenlight said
its own outside financial advisers concluded the plan wouldn't
result in harm to GM's credit rating.
"GM is ignoring the significant value unlocked by our plan, and
has concocted a ratings issue by presenting a one-sided and flawed
analysis to the rating agencies," said a statement from Vinit
Sethi, partner and director of research at Greenlight, who is being
put forth as a board candidate. Mr. Sethi said the agencies "were
misled" by GM.
Mr. Einhorn has been pressing GM as he seeks to invigorate a
stock that has languished despite climbing sales and profits. His
theory is that two classes of stock would attract new yield-hungry
investors and those looking for growth.
In addition to Mr. Sethi, Greenlight named as candidates Leo
Hindery Jr., managing partner of InterMedia Partners and former
chief executive of Tele-Communications Inc., Liberty Media and
AT&T Broadband; and William N. Thorndike Jr., founder of
private-equity investment firm Housatonic Partners and chairman of
Consol Energy.
Mr. Thorndike's 2012 book, "The Outsiders: Eight Unconventional
CEOs and Their Radically Rational Blueprint for Success,"
chronicled investors who made massive returns through smart capital
allocation and is viewed as something of a Bible among activist
investors. GM's capital and how to boost the stock will be front
and center for the fight, and Hindrey and Thorndike are likely seen
by some as specialists in that area.
GM shares were down 0.1% in late morning trade Wednesday.
David Benoit contributed to this article.
Write to Anne Steele at Anne.Steele@wsj.com and Mike Colias at
Mike.Colias@wsj.com
(END) Dow Jones Newswires
April 12, 2017 11:48 ET (15:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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