Greenlight Capital, led by David Einhorn, wants General Motors Company (NYSE:GM) to split its common stock into two classes. However, the automaker has rejected the hedge fund’s proposal.
Talking in a CNBC program on Tuesday, Einhorn said that Two General Motors stock classes would better serve investors.
Greenlight Capital holds 0.88% of General Motors shares, with the holding valued at more than $450 million. The hedge funds believe that switching to two stock classes would help the automaker improve its financial flexibility and boost the stock’s value.
“It [GM stock] trades below its multiple in the S&P 500. The PE is less than six. The payout, the dividend yield, which is more than 4 percent … puts it among the highest. And further, they’re only paying out about a quarter of their earnings,” Einhorn said.
Einhorn gave an interesting example.
“I would compare it to an ice cream stand that just serves chocolate and vanilla swirl ice cream,” Einhorn said. “If you gave investors more choice, some people like chocolate. Some like vanilla. Some like swirl.”
General Motors Rejects Einhorn’s Proposal
General Motors Company (NYSE:GM) has rejected Greenlight Capital’s proposal to create a dual-class common stock structure.
In connection with its proposal, Greenlight has nominated a slate of four candidates for election to General Motors’ board of directors.
In a statement, the automaker said its board and management believes that eliminating the dividend on the existing common stock and distributing the proposed new dividend security will create an unacceptable level of risk. It would also not “serve the best interests of GM shareholders,” the automaker said.
The risks include the loss of General Motors’ investment grade credit rating; unknown and uncertain market demand and liquidity for the proposed securities, resulting in depressed pricing and selling pressure; unproven and entirely speculative valuation impact; and material governance challenges arising from two classes of stock with divergent objectives.
“GM’s Board and management are fundamentally transforming our company by executing a plan that is delivering record financial and operating results and returning significant capital to our shareholders,” General Motors CEO Mary Barra said in a statement.
“For seven months, we’ve extensively reviewed the proposed dual-class structure, as well as other capital allocation strategies, and concluded that continuing to execute our strategy and adhering to our current disciplined capital allocation framework is the best path to deliver increased value,” Barra added.
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.
Shares of General Motors were trading up 2.42% in the after-hours session. During the last 12 months, the automaker’s stock has gained 14.86%.
