General Motors Rejects Activist Investor's Proposal For Dual-class Stock Structure

Like He Did With Apple David Einhorn Wants GM To Create 2 Share Classes

Billionaire hedge fund manager David Einhorn has called for the company to create a dual-class share structure that would effectively eliminate the dividend on the common stock.

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.

The investor also nominated a slate of four candidates for election to GM's board - a move GM also rejected. The company said it believes GM could lower its cost of capital and unlock between $13 billion and $38 billion in shareholder value.

In addition, General Motors Company (NYSE:GM) said its board has decided not to recommend any of Greenlight's nominees for election to the board.

General Motors noted that elimination of the dividend on GM's existing common stock would likely lead to selling pressure by a significant universe of institutional owners and cause concern and confusion among retail holders, resulting in downward pressure on its share price.

GM shareholder Bob Olstein, chairman of Olstein Capital Management, understands Einhorn's frustrations but thinks the stock can go higher without any financial engineering.

For CEO Mary Barra, this is the second go-round with an activist in just two years.

Losing the investment-grade credit rating would raise borrowing costs at GM Financial, the company's in-house financing arm. 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.

DETROIT (AP) - General Motors has rejected a proposal from investor David Einhorn to split its stock into two classes.

Greenlight Capital holds 0.88% of General Motors shares, with the holding valued at more than $450 million. The Dividend Shares would appeal to yield-focused investors. GM said Greenlight's proposal changed over time, but it believes Greenlight's current proposal carries new risks such as the loss of investment-grade credit rating and governance challenges for two classes of stock. Greenlight has held GM shares since early 2011, months after the largest US automaker rebounded from a government-backed bankruptcy with an initial public offering. Greenlight has held GM shares since early 2011, months after the largest USA automaker rebounded from government-backed bankruptcy with an initial public offering. So, essentially, we are now learning about the offer because Greenlight Capital needs the backing of more shareholders to force the split. In March 2015, GM announced a $5 billion share buyback program to avoid a public standoff with a group of major investors. While GM has the Chevrolet Bolt electric vehicle hitting the market this year ahead of Tesla Inc.'s Model 3, the upstart run by Elon Musk is gaining on GM in market capitalization. GM expects to return approximately $7 billion in cash to shareholders in 2017, bringing total cash returns to shareholders to approximately $25 billion since 2012.