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GM Authority

Two Consulting Firms Recommend GM Shareholders Vote Against Greenlight Proposal

Two independent proxy advisory firms — Shareholder Services (ISS) and Glass Lewis — are advising that GM shareholders to vote against the proposal by Greenlight Capital and vote for all of the board’s nominees instead for GM’s 2017 Annual Meeting set to take place on June 6th, 2017.

In March, investment firm Greenlight Capital and its founder, David Einhorn, started a proxy fight seeking to eliminate the dividend on existing GM common stock and create a new dividend-focused security, the latter of which is an unprecedented instrument.

In its May 26, 2017 report, ISS concluded the following:

  • “The negative outcomes associated with the proposed dual class share structure combined with the lack of visibility regarding value creation for shareholders drive our recommendation against the dual class proposal.” (ISS Report, pg. 19)
  • “…considering that the dissident’s dual class share proposal does not warrant shareholder support, the dissident has not made a compelling case that change at the board level focusing on the implementation of its proposal is warranted.” (ISS Report, pg. 19)

In support of its conclusion, ISS stated:

  • “The bottom line of this analysis is that Barra and her management team have delivered objective operational improvements.” (ISS Report, pg. 17)
  • “…the company has closed the performance gap relative to peers since Barra took over as CEO, while outperforming Ford, and… the market has not reacted positively to the dissident’s proposal.” (ISS Report, pg. 16)
  • “The dual class structure would create conflicts of interest as dividend and capital appreciation shareholders would have different objectives, adding complexity to decisions regarding the company’s capital structure and investments. For example, an investment to grow profits would primarily benefit capital appreciation shareholders.” (ISS Report, pg. 18)

The GM Authority Take

Einhorn and Greenlight Capital have been adamant about their recommendation, but it’s tough to argue that their proposal is more beneficial compared to the problems it presents. Looks likeJune 6th is sharping up to be quite the doozy.

GM Authority Executive Editor with a passion for business strategy and fast cars.

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Comments

  1. As a GM shareholder I voted against it. I know GM is worried about this because they’ve been calling me about it.

    Reply
  2. I expect most to vote against it. The deal has much more risk to lose than gain.

    This was a play to benefit Einhorn in the short term than anyone else.

    GM has been doing the right thing to improve efficiency and cutting cost. The plans to revamp the lines post bail out are now in the second stage but this time funded by profits. It is not the fast way to turn things around but it is the fiscally responsible way you do it.

    With the direction of the market GM is playing for the future because for once they can afford to. The old ways of voluming their way out no longer is viable and they are working much smarter this time. It may be slow and boring but it will pay off in the long term.

    If any investors want faster pay offs go to silicone valley and find the risk and gains possibly bigger and faster but with more risk.

    Reply
  3. Well, the yield is around 4.4% – which isn’t bad, and better still if you hold it in a tax-deferred acct.. They have a bond that yields 5%+ …

    As far as outperforming peers goes – unless you bought in that early dip, the stock has basically gone sideways, while Ford sank 40%. So yes, they’ve outperformed Ford. But most NFL teams have outperformed the Cleveland Browns. So, take that with a grain of salt.

    Activist investors, meh. I don’t see how their proposition benefits most investors.

    Reply
  4. If one is a shareholder with that kind of lazy attitude, then maybe you deserve a 5x p/e multiple, the lowest of all 500 companies in the S&p500. I’m voting for the split, with 200,000 shares, and everyone I know is voting for it aswell. Mary needs to be woken up to the fact that being least valued is yhe opposite of her mission of building “the most valued auto company in the world”. And let’s not forget, I own more shares than the board of directors ex Mary. They don’t care about the stock because they hardly own any.

    Reply
    1. Not lazy. It’s a sideways stock – if you want more income, or better capital appreciation, there are better options.

      Mgt gets exercisable options at artificially depressed prices. A 5 p/e just says the market isn’t enamored of GM.

      You’d have made better $ shorting Ford than going long GM. And Mark Fields left with $57m.

      So have at it – I hope it turns out well for you/us.

      Reply
    2. I bought GM stock for the dividend and I’m getting a little north of a 5% yield. Greenlight smacks of a financial gimmick, not a plan to fix fundamental issues GM faces as a company. Stock manipulation is more likely to make matters worse.

      Information is scarce so I’ve only seen 2 independent analyses and both give Greenlight a thumbs down.

      If it goes through, I expect Einhorn won’t hang around long but will take any money and run. I’ll likely join him dumping on the issuance bump and run elsewhere.

      Reply

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