While it was quiet on the portfolio front, we made more noise than usual (and more than we’d like) by making public our idea for General Motors Company (NYSE:GM) to unlock tens of billions of dollars of shareholder value. As a general matter, we prefer to avoid public activism. The last time we did this was with AAPL in 2013 after owning the stock for three years. This is a similar situation; we had owned GM shares for years before advancing our idea to management.
When we offer companies private advice, they either take it, or they explain why they are not going to take it. Usually if they reject the idea, we understand the reasoning and prefer not to press the issue. Sometimes, we agree to disagree, and then decide whether to hold the stock or exit the position.
In the case of GM, we felt the need to press the issue as we believe there is a lot of value to unlock and the company did not fairly evaluate our idea. Management made a decision and then spent a great deal of effort coming up with reasons to justify that decision. To poison our idea, management went so far as to misrepresent our proposal to the credit rating agencies, allowing them to claim that the company’s credit standing would be in jeopardy if it implemented our idea. Ironically, our idea was designed to be credit positive and the least invasive way to unlock billions of dollars of shareholder value. This sort of behavior by management leaves us no room to agree to disagree.
We know this is a tough fight. Fortunately, the math is on our side (if GM does what we suggest, we believe the stock will go up a lot) and the ultimate decision will be made by our fellow shareholders. We believe others recognize that the stock is deeply undervalued and when shareholders grasp the math and the extent of GM’s behavior, they will vote with their wallets and for needed change at the Board level.
- From Einhorn's first-quarter 2017 shareholder commentary.
