GM stock at ~$35 has been languishing for years and is below the 2010 IPO price when it emerged from bankruptcy.
General Motors (NYSE: GM) said that its Board of Directors and management have “thoroughly analyzed and rejected” a non-binding stock split proposal that Greenlight Capital intends to submit for a vote at GM’s 2017 annual meeting of shareholders.
The proposal – pure Wall Street Hedge Fund – would eliminate the dividend on the existing GM common stock and create new dividend-focused security (“dividend security”), thereby creating a dual-class common stock wit diametrically opposing goals. Greenlight has also nominated a slate of four of more candidates for election to GM’s Board of Directors, but did not name them.
It appears that a proxy fight is unlikely at this time from billionaire investor David Einhorn, owner of Greenlight, who is unhappy with GM stock, which has been languishing in the $35 range – below the IPO price established by the market when it emerged from bankruptcy in 2010.
Rating agencies Moody’s and S&P said that dual class common stock could negatively impact the automaker’s credit rating. A non-investment grade rating would have an approximately $1 billion EBT impact on GM Financial, put $1 billion of profit at risk for the automotive company and necessitate approximately an additional $5-$10 billion of cash on the GM balance sheet.
It would also limit GM’s financial flexibility and adversely affect the company’s risk profile, including GM’s ability to execute its captive finance strategy, access capital markets efficiently and execute revolver renewals.
Mary Barra, CEO of GM, was more direct: “Our Board and management remain laser focused on advancing our progress and creating value for our owners by enhancing our portfolio and our operations, leading the future of personal mobility and driving strong performance,” Barra said. “In contrast, the proposed structure creates an unacceptable level of risk for our company and its shareholders,” concluded Barra.”
Risks
- The loss of GM’s 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.
