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General Motors Company (GM): Einhorn Slams Board In New Letter As GM Sabotages Activist’s Proposal

Billionaire hedge fund manager David Einhorn of Greenlight Capital isn’t impressed with the way General Motors Company (NYSE:GM)‘s board plays ball. Greenlight Capital sent another letter to its fellow GM shareholders on Tuesday in which it slammed the response of GM’s board to its various proposals which were first revealed at the end of March, and which include splitting the company’s shares into two classes of stock (dubbed the “dividend” shares and the “capital appreciation” shares). Greenlight stated that such a move could unlock as much as $38 billion in shareholder value.

However, it appears that the members of General Motors Company (NYSE:GM)’s board aren’t convinced by the plan in the slightest, believing among other things that it would damage the company’s credit rating. Greenlight Capital took aim at that in its latest letter, stating that GM’s fixation with its credit rating is a “red herring” meant to distract shareholders. Greenlight also claimed that GM actively misrepresented its plan, which the fund believes would be credit neutral, in its discussions with rating agencies so as to get the desired negative response and continue to sit on its hands.

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David Einhorn

Greenlight has taken aim at General Motors Company (NYSE:GM)’s corporate culture in the past, stating that the company appears to be more interested in maintaining the status quo than it is on unlocking shareholder value. As the fund pointed out in its most recent presentation, it took mounting public pressure (and the avoidance of a proxy fight) for GM to finally institute a share buyback program in 2015, though that in itself has done little to aid the stock, which is flat over the last four years and is 4.64% in the red since its November 2010 IPO.

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Greenlight chalks up the board’s unwillingness to consider change to the fact that its board members own just 0.02% of GM’s shares and pull in $3.5 million in annual salary collectively. Such a structure compels the board to have its own preservation in mind as opposed to the well being of shareholders.

General Motors currently sports the lowest P/E in the S&P 500 at 5.4x, while also boasting an impressive dividend yield of 4.67 (and the company’s payout ratio is a very low 24.6%). In Greenlight’s eyes, that combination has led to the stock being bought up by two distinct kinds of investors with different objectives: the value seekers who believe the stock should rise based on its discount to the company’s intrinsic value, and the income investors who are more than happy to collect the healthy dividend payments and have little concern for the underlying stock price in the interim.

Greenlight believes that breaking up those investors into their own classes of stock and forcing the market to take a better look at the “capital appreciation” shares on their own merits will lead to a substantial increase in their value. However, unlike the resolution that was reached regarding share buybacks, it appears this battle will not end in anything but a proxy contest, as Greenlight fights to have its three nominees bring winds of change to GM’s board.

David Einhorn
David Einhorn
Greenlight Capital

Disclosure: None