What Is Going On With GM and David Einhorn?
The big General Motors shareholder meeting is in early June and there is a lot to talk about. For one, GM has announced plans to leave South Africa and India by the end of the year, cutting off access to those markets but also stopping losses in those countries. GM has also made some big strides recently in autonomous and car-sharing technology that will excite investors. However, one of the big things attracting the most attention will probably be investor David Einhorn and his attempt to divide GM stock into two classes.
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David Einhorn of Greenlight Capital has been referred to as an “activist billionaire” by the Detroit Free Press. His plan would divide GM shareholders into traditional dividend-paying shares and “capital appreciation” shares that would entitle holders to a larger share of GM profits. In addition to the new stock structure, Einhorn is putting fourth three of his own candidates to serve on the automaker’s board. When the discussion first began, Einhorn praised GM and his way of doing business since it worked out of bankruptcy and government bailouts. However, as the battle has become more heated, he has expressed displeasure at GM’s stock prices, as they have not moved much since the 2010 IPO, despite rising profits and sales.
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General Motors and its leader Mary Barra are fighting back against Greenlight Capital, saying that a change like this would hurt the company and all of its shareholders. If new members were added to the board and GM had to come up with a new strategy to be accountable to both types of shareholders under the proposed model, the automaker would be severely limited in pursuing its recently aggressive business strategy. GM is also concerned that big changes could result in an adjustment of the business’s credit rating, making it harder to get investors from major firms and more expensive to borrow money.
On June 6th, we will all see how the shareholders go. Outside commentary seems to be against David Einhorn’s plan, especially as GM is preparing for an eventual industry slowdown.
News Source: Detroit Free Press