Activist targets GM share structure, board


Investor David Einhorn unveiled a proposal Tuesday to try to boost General Motors (NYSE: GM - news) share price by creating two classes of stock, signaling a possible battle at the carmaker's annual meeting.

GM rejected the initiative, calling it risky, and said it also would fight a plan by Einhorn to nominate four candidates to the GM board.

Shares (Berlin: DI6.BE - news) of GM jumped on the Einhorn move, finishing up 2.5 percent at $35.56.

Einhorn's Greenlight Capital, which is estimated to hold less than one percent of GM shares, proposed splitting GM common stock into two classes, one that would receive the dividends and the other that would be tied to remaining earnings and future cash flow.

The proposal aims to turn around the company's sluggish stock performance, which in spite of strong profits amid a multi-year US auto boom, has not moved appreciably.

Einhorn said the move would release between $13 and $38 billion of stock value.

"As significant, long-term shareholders, we believe in GM's strong earnings potential," Einhorn said in a statement. "Our plan would unlock significant value and lower GM's cost of capital."

But GM said the Einhorn proposal creates "an unacceptable level of risk," including threatening GM's investment-grade credit rating.

And it could potentially have the opposite of the intended effect, depressing the share price due to "uncertain market demand and liquidity for the proposed securities," the company said in a statement.

GM also said it intends to recommend that shareholders reject Greenlight's slate of four board nominees, saying "GM has a highly experienced board with relevant expertise and capabilities in key areas that align with the company's strategic direction."

GM's assessment of the Einhorn appraisal received support from S&P Global Ratings, which warned a dual-class could warrant a ratings cut below investment grade.

The shift "could lead us to negatively revise our assessment of the company's financial risk profile" because the firm would lack flexibility to eliminate or reduce the dividend if need be, S&P said.

The company is expected to hold its annual meeting mid-year.