David Einhorn (Trades, Portfolio) has picked up the lowest-P/E stock in the S&P 500 and on Wednesday strengthened his efforts to enforce changes at the resistant company.
The Greenlight Capital founder said in a release that he had formally nominated three directors to ensure General Motors’ (GM, Financial) board “objectively considers” his plan to split the company’s stock into two share classes. In addition to the nominees, his plan, which he accused GM of distorting, is also up for vote at the 2017 annual shareholder meeting.
“Our nominees are proven business leaders who are committed to working with the incumbent Directors and exploring all avenues to address GM’s persistent valuation gap and create value for all shareholders,” Einhorn said.
If Einhorn gets his way, GM would issue shares that come with its 4.4% dividend and keep existing stock as “capital appreciation shares” that would represent the remaining earnings, cash flows and future growth prospects. The changes would allow market participants to recognize the value of the stock, which sits at $33.62 after climbing 41% in the past five years, more accurately and provide it easier access to capital and greater financial flexibility, Einhorn has said.
But GM feels otherwise. On March 28, it rejected Einhorn’s proposal after seven months of interacting with Greenlight as too risky. The company cited challenges such a possible degrading of its credit rating, share price and valuation. It also feared the difficulty of governing two classes of shares with different interests.
In the same release, GM said it would not recommend any of Einhorn’s board nominees for election after evaluating their skills and qualifications.
The company again rebuffed Einhorn in a response to his Wednesday assertion that it exaggerated the risk to its credit rating.
“General Motors presented Greenlight’s Dividend Share idea to the rating agencies fully and fairly,” GM said. “The rating agencies’ public statements issued regarding the Greenlight proposal clearly indicate that they understood the idea in all its facets, and would represent a credit negative if implemented. Any suggestion to the contrary is baseless and irresponsible.
The single-digit price-earnings ratio the market has assigned to GM, the world’s fourth-largest auto manufacturer, belies its strengthening financial results. GM announced record earnings per share for 2016, driven by U.S. demand for trucks and SUVs and increased sales in China. Other records included annual revenue after 9.2% growth and fourth-quarter revenue after 10.8% growth.
GM’s annual meeting of shareholders takes place Tuesday, June 6.
