GM Meets Activist in Face-Off Over Stock -- WSJ

By Mike Colias Features Dow Jones Newswires

General Motors Co. Chief Executive Mary Barra faces shareholders this week, under pressure from a hedge-fund investor and fresh scrutiny following the ouster of her counterpart at a crosstown rival.

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Shareholders have generally been patient with GM's 55-year-old boss even as the stock trades near the $33 initial public offering price set in 2010. Ms. Barra emerged victorious in a standoff two years ago against a group of investors demanding share buybacks, and she now opposes a new proposal from Greenlight Capital's David Einhorn to split GM's shares into two classes.

GM investors will vote Tuesday on Greenlight's proposal to divide GM stock into a security that pays dividends and a "capital-appreciation" stock that would entitle holders to all additional earnings. The idea has garnered little support from other investors, and follows a string of record profits, stock buybacks and consistent dividends.

"I trust Mary Barra and we back her," said Robert Olstein, chairman of the Olstein Capital Management, a value-oriented investment firm that owns about 265,000 GM shares. Even so, Mr. Olstein said he is open to more-drastic steps to unlock GM's value, though he doesn't think Mr. Einhorn's plan is the right one.

"I understand he's frustrated. I am too," Mr. Olstein said. "But I'm not willing to gamble on his strategy."

Mr. Einhorn's strategy has already been rejected by the board, but will be debated in a GM annual meeting taking place about two weeks after the ouster of Ford Motor Co. CEO Mark Fields. Like Ms. Barra, Mr. Fields led the company during an era of stock-price malaise -- Tesla Inc., an electric-vehicle startup selling a fraction of Detroit's volumes, passed both companies in market valuation earlier this year.

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Mr. Einhorn has made comments skeptical of Tesla, saying he shorts the stock because he believes its value is overrated. Tesla officials couldn't immediately be reached for comment.

Meanwhile, Mr. Einhorn argues GM is underappreciated, and says dividing shares would attract more interest from both value and growth-hungry investors and sees it lifting the company's value by more than 50%.

GM disagrees, saying the dividend shares could weigh down the company with future payment obligations and would risk the auto maker's investment-grade rating, which took years to rebuild following its 2009 bankruptcy.

No large shareholder has stepped forward to back Mr. Einhorn's idea. Advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co. suggested investors shoot it down, citing potential competing interests among the two classes of shares, the threat to GM's financial flexibility and other problems.

Still, Mr. Einhorn's move underscores the frustration among GM investors. Analysts say GM -- riding a seven-year surge in U.S. auto sales and growth in China -- may need to prove it can withstand a down cycle before investors buy in.

The swift ouster of Mr. Fields last month, who took Ford's helm shortly after Ms. Barra started leading GM, revealed the growing pressure on CEOs of conventional car companies as they work to combat tech giants edging in on the auto business. Detroit's chiefs, including Mr. Fields' successor Jim Hackett, must show they can cash in on budding technologies like self-driving cars and electric vehicles.

"GM cannot wait for an industry downturn to prove to investors that it has turned the corner," ISS wrote in its advisory. "The market is willing to pay more for future profitability growth than for resilience during a downturn, a reality encapsulated in the Tesla story."

ISS also noted GM's total shareholder return under Ms. Barra is better than Ford's performance and outperformed an index of auto-related stocks.

In a letter to shareholders last month, Ms. Barra acknowledged that GM's stock is "undervalued" but called Mr. Einhorn's proposal a "high-risk financial engineering experiment" that would "reduce our flexibility without generating any intrinsic value or operational growth in our business."

There have been no settlement talks since Mr. Einhorn went public with the plan, according to people familiar with the matter. While he has continued to praise Ms. Barra's strategy, Mr. Einhorn's tone has turned edgier since then.

In a recent letter sent to shareholders, Mr. Einhorn accused GM of misrepresenting his plan to the ratings firms, all three of which have said the dual-share structure could trigger a downgrade. GM is "distracting you from their track record" and "resisting change by hiding behind a credit rating agency red herring," he wrote.

Mr. Einhorn is also proposing three new directors for GM's board.

(END) Dow Jones Newswires

June 05, 2017 02:47 ET (06:47 GMT)