GM rebuffs two-class share plan from Einhorn's Greenlight Capital

Tue Mar 28, 2017 4:00pm EDT
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By Svea Herbst-Bayliss and Nick Carey

(Reuters) - General Motors Co (GM.N: Quote) on Tuesday rejected a proposal by billionaire investor David Einhorn to split its common stock into two classes to help boost its share price.

In a regulatory filing, the country's largest automaker said that the proposal "would not help GM sell more cars, drive higher profitability, or generate greater cash flow."

Einhorn, who runs hedge fund Greenlight Capital, wants management to split its common stock into two classes: one that would receive the current dividends and one that would participate in all earnings and future growth of the company.

The move would lower the company's cost of capital, improve its financial flexibility and boost its market capitalization by as much as $38 billion, Einhorn said.

To add more pressure on the company, Einhorn has said he wants to nominate directors but would not identify them.

Moody's and S&P both declared shortly after Einhorn's advances became public that such a structure could negatively impact the automaker's credit rating.

"Moody's believes that the Greenlight proposal would reduce financial flexibility and increase credit risk," Moody's Investors Service wrote in a note. "The creation of a perpetual, cumulative dividend in excess of $2.2 billion would saddle GM with a sizable and largely inflexible cash outflow burden."

GM considered the plan too risky after mulling Einhorn's ideas for some seven months, while it was also negotiating the sale of German Opel brand and Britain’s Vauxhall to France's PSA Group (PEUP.PA: Quote). It has hired two banks to help fight the plan, a person familiar with the matter said.   Continued...

David Einhorn, president of Greenlight Capital speaks at the Sohn Investment Conference in New York City, U.S. May 4, 2016. REUTERS/Brendan McDermid/File photo