GM Shareholders Reject Proposal to Divide Shares Into Two Classes -- Update

By Mike Colias Features Dow Jones Newswires

General Motors Co. shareholders delivered a vote of confidence for Chief Executive Mary Barra Tuesday, shooting down hedge-fund manager David Einhorn's proposal to split the company's stock into two classes.

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Preliminary voting results indicate overwhelming rejection of a plan first floated in March by Mr. Einhorn's Greenlight Capital Inc., which included a class of stock that pays dividends and a second that paid all additional earnings to growth investors. Shareholders also voted down Mr. Einhorn's slate of three proposed directors, instead opting to re-elect GM's 11 incumbent directors that the U.S. auto giant proposed.

The outcome is a win for Ms. Barra and GM's directors amid mounting pressure on Detroit auto makers to respond to a growing threat from tech companies developing electric cars and self-driving vehicles. Ms. Barra, who is chairman in addition to CEO, lead a boardroom fight against the dual-class idea, claiming it amounted to financial engineering that would have hampered the company's ability to manage cyclical downturns and invest in future technologies.

Greenlight officials could not immediately be reached. More than 90% of GM shareholder votes cast rejected Greenlight's plan.

The shareholder vote comes just weeks after Ford Motor Co. ousted its chief executive, Mark Fields. Like Ms. Barra, Mr. Fields took over in 2014 after a career climbing the ranks in various management positions. He was replaced by Jim Hackett, an industry outsider who had served on Ford's board.

Still, GM could remain susceptible to future activist moves if Ms. Barra can't lift the share price. GM shares are stuck at the $33 initial public offering price from 2010 and the stock is among the cheapest in the S&P 500 on a price-to-earnings-ratio basis.

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Shares of GM traded down modestly Tuesday morning at $34.27. GM's market valuation of $51.8 billion trails Tesla Inc.'s $57.6 billion valuation, an indication that Wall Street prizes future growth opportunities over near-term profit.

GM has delivered several years of strong profits under Ms. Barra. But auto sales are slowing in the U.S. and China, the company's two primary markets.

Ms. Barra told reporters ahead of the meeting that she believes GM shares are undervalued and she continues to explore ways to "unlock that value." But she also defended GM's record, which includes share buybacks and dividends, and big bets on future growth areas where Tesla and other Silicon Valley companies are seen as having a potential edge.

"We do believe that GM's stock is undervalued and we are taking decisive action to address this," she said.

Tesla faces its own proxy battle Tuesday, with certain shareholders pushing to have directors elected yearly rather than on three-year terms. The proposal is seen as a way to increase accountability.

Write to Mike Colias at Mike.Colias@wsj.com

General Motors Co. shareholders signaled continued patience with Chief Executive Mary Barra's attempts to boost a languishing share price, rejecting hedge-fund manager David Einhorn's proposal to split the company's stock into two classes.

More than 90% of GM investors casting ballots at the company's annual meeting Tuesday rejected a plan floated in March by Mr. Einhorn's Greenlight Capital Inc. that aimed to shake up GM's capital structure. The plan called for a class of stock that pays dividends and a second that paid all additional earnings growth to investors.

Shareholders also overwhelmingly voted down Mr. Einhorn's slate of three proposed directors, instead opting to re-elect 11 incumbent directors backed by the U.S. auto giant.

The results are the latest victory for Ms. Barra, a 55-year-old executive who has taken swift action to help the company emerge from a safety crisis, fend off activist investors and sever underperforming businesses. While GM's stock has declined more than 10% during Ms. Barra's three-plus years at the helm, she has eased investor concerns by producing consistent financial results and implementing a series of share buybacks.

Ms. Barra, speaking with reporters, indicated she isn't ignoring GM's "undervalued" shares, which remain stuck near the $33 initial public offering price from 2010 and performing among the cheapest in the S&P 500 on a price-to-earnings-ratio basis.

"We have to keep earning our way," Ms. Barra said. She emphasized GM must "outperform" peers amid a slowdown in the U.S. market, a challenge analysts have flagged as a key reason for its struggles.

Ms. Barra, who is chairman in addition to CEO, led the boardroom fight against Mr. Einhorn's dual-class idea, claiming it amounted to financial engineering that would have hampered the company's ability to manage cyclical downturns and invest in future technologies. In 2015, before being named chairman, she rallied directors and her management team to fend off a separate group of investors demanding billions in share buybacks and board representation.

GM has encountered various speed bumps since Ms. Barra took over for Dan Akerson, an auto industry outsider who was appointed to GM's board during the government-funded bankruptcy of the company in 2009. Mr. Akerson left GM's CEO job in January 2014 after three years, leaving Ms. Barra to deal with an ignition-switch safety recall that presented a management crisis and cost billions of dollars to resolve, denting the auto maker's reputation.

In a statement, Mr. Einhorn expressed disappointment that shareholders "elected to maintain the status quo" over what he called a "creative idea" to unlock value in GM's stock. He congratulated the management team on its latest "win."

Shares of GM traded down modestly Tuesday at $34.19. GM's market valuation of $51.8 billion trails Tesla Inc.'s $57.6 billion valuation, an indication that Wall Street prizes future growth opportunities over near-term profit.

Detroit auto makers are under mounting pressure to respond to a growing threat from tech companies developing electric cars and self-driving vehicles. Ford Motor Co. in May ousted its chief executive, Mark Fields, who like Ms. Barra took over in 2014 after a career climbing the ranks. He was replaced by Jim Hackett, an industry outsider who had served on Ford's board.

GM generally has gotten more credit than Ford for its bets on future growth areas where Tesla and other Silicon Valley companies are seen as having an edge. That includes last year's roughly $1 billion acquisition of autonomous-vehicle developer Cruise Automation, which helps GM's attract tech talent and equip the auto maker to combat Alphabet Inc. and other tech companies looking to compete in the car business.

The rejection of Mr. Einhorn's plan won't end the debate over how GM can better perform on the stock market. Some analysts have floated the idea of the creation of a tracking stock for longer-term and potentially higher-growth businesses such as Cruise and GM's in-car concierge service OnStar.

"If GM successfully builds out its autonomous/mobility solutions/services and starts recording revenue, we believe a tracking stock of those efforts could unlock value," RBC Capital analyst Joseph Spak wrote in a March note to investors.

Ms. Barra said GM continues to look at different structures that could attract growth investors, but also cautioned many of the tech-based pieces of the business are intertwined with GM's broader vehicle-making efforts.

"We regularly continue to evaluate many different ideas to unlock that value, but also recognizing some of the connectivity" between areas such as self-driving cars and GM's electric-vehicle program, she said.

In addition to tech investments, GM has been exiting markets where profits have been hard to come by. The auto maker left Russia in 2015, and is in the process of selling operations in Europe and South Africa. In May, it said it would no longer sell cars in India, a market expected to grow significantly in coming years.

Write to Mike Colias at Mike.Colias@wsj.com

(END) Dow Jones Newswires

June 06, 2017 15:56 ET (19:56 GMT)