General Motors has been reaching out to its shareholders and urging them to vote the white proxy card for all of GM Board’s director nominees and against the proposal by Greenlight Capital for its GM’s 2017 Annual Meeting set to take place on June 6th, 2017.
In May, two independent proxy advisory firms — Shareholder Services (ISS) and Glass Lewis — found that it would be best for GM shareholders to vote against the scheme proposed by Greenlight, which is running a proxy fight in order to eliminate the dividend on existing GM common stock and create a new dividend-focused security, the latter of which is an unprecedented instrument. The investment firm, run by investment banker David Einhorn, is waging the proxy war as it believes that its plan will unlock untapped value in GM stock.
ISS and Glass Lewis have identified three reasons for voting against the Greenlight proposal:
- GM’s Board and management are already driving transformational change and creating value for shareholders
- The advisory services disagree with key Greenlight assumptions regarding the value creation potential of its proposal.
- Each advises that the Greenlight nominees are definitively linked to Greenlight’s high-risk proposal.
GM states that in its latest letter, Greenlight attempts to mislead shareholders through its highly selective characterization of the ISS and Glass Lewis recommendations and continues to ignore these three essential points and the supporting analysis by both of the leading proxy advisory services:
1. GM’s Board and management are already driving transformational change and creating value for shareholders:
- “Overall, we find that the Company has articulated a clear strategy to create shareholder value and has demonstrated progress executing this strategy.” (Glass Lewis Report, p. 16)
- “It is…encouraging to hear GM’s directors explain the company’s strategy for repositioning itself to be viewed as a key player in the disruption of the auto sector, as opposed to a company being disrupted. To this end, the board is actively considering the addition of directors with tech backgrounds.” (ISS Report, p. 18)
- “On an absolute basis, the Company generated positive total shareholder returns over every period reviewed in our analysis, with particularly favorable performance over the one-year and five-year periods. Notably, the Company generated a five-year total return of 56.5%, or approximately 9.4% on an annualized basis.” (Glass Lewis Report, p. 15)
- “…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, p. 16)
2. The advisory services disagree with key Greenlight assumptions regarding the value creation potential of its proposal:
- “…the value creation is uncertain, and there has been no market endorsement (as GM share price remained flat after the proposal was made public).” (ISS Report, p. 18)
- “The dissident argues that post-split, the capital appreciation stock would trade for the same forward multiple that GM shares trade for today. We question this assumption, as the stock narrative would continue to be the same…and the stock would offer no dividend yield support… As such, we considered it reasonable to assume that GM’s capital appreciation stock could trade below the current 5.5x NTM [next twelve months] P/E. (emphasis added).” (ISS Report, p. 18)
- “If GM wants to avoid a higher yield on the dividend shares it would have to provide higher certainty of the dividend payments. However, if there is a solid commitment to dividend payments on the dividend shares the market could consider them to be preferred/quasi debt, which would increase GM’s perceived risk and negatively impact what investors are willing to pay for the capital appreciation shares.” (ISS Report, p. 19)
- “…the market for the proposed dividend shares is largely untested and…the incumbent board raises valid concern that there may be a lack of institutional interest in a unique security of this nature and that the lack of established demand creates additional risk, including the potential for selling pressure from shareholders who do not wish to hold the dividend shares.” (Glass Lewis Report, p. 17)
3. Each advises that the Greenlight nominees are definitively linked to Greenlight’s high-risk proposal:
- “Regarding Greenlight’s effort to appoint its board nominees, we note the Dissident presents little evidence to suggest their appointment is for reasons other than to progress its share separation proposal. In our view, Greenlight has not specifically justified the removal of [the Board’s] Nominees…” (Glass Lewis Report, p. 19)
- “As such, 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, p. 19)
- “In our view, Greenlight’s nomination of directors is primarily to encourage the entire GM board to more fully and fairly consider Greenlight’s proposal to separate GM shares.” (Glass Lewis Report, p. 14)
- Both ISS and Glass Lewis’s analyses are consistent with our conclusion that Greenlight’s high-risk financial engineering experiment would reduce our flexibility and undermine our progress without generating any intrinsic value or operational growth in our business and would be detrimental to our shareholders. We continue to urge GM shareholders to protect the value of their investment by voting FOR ALL GM’s director nominees and AGAINST Greenlight’s high-risk proposal on the WHITE proxy card.
GM urges shareholders to vote the white proxy card, as voting the green card will revoke their vote on the white card.
Those who have questions about how to vote their shares or are in need of additional assistance can contact the firm assisting GM in the solicitation of proxies, as follows:
INNISFREE M&A INCORPORATED
Shareholders Call Toll-Free: (877) 825-8964
Shareholders Outside the U.S. and Canada Call: +1 (412) 232-3651
Banks and Brokers Call Collect: (212) 750-5833