David Einhorn is the second activist to target GM in two years — one chart explains why (GM)

Greenlight Capital’s David Einhorn is gunning for General Motors. The investor has turned activist and rolled out an unprecedented proposal to create two classes of GM stock, one driven by growth and the other supported by a permanent dividend.

After studying Einhorn’s proposal for seven months, GM rejected the plan as well as his goal of getting four seats on GM’s board. Thus far both Moody’s and S&P have sided with GM’s argument that Einhorn’s idea would sink the carmaker’s investment-grade credit rating and poses an unnecessary risk.

GM has also insisted that two classes of stock would create management conflicts. Which group of investors would GM put first as it weighed big decisions?

For CEO Mary Barra, this is the second go-round with an activist in just two years. In 2015, GM gave in to Harry Wilson’s much more straightforward demand to increase the speed at which it was buying back its own shares.

Both investors were spurred by the same issue: even as auto sales have surged, and the broader stock market has enjoyed a historic bull run, GM shares have mostly done nothing. Only recently have shares jumped, after Einhorn disclosed his ownership and also as the election of Donald Trump spurred a broad rally in US manufacturers of all kinds.

Still, over the longer term, GM has proven to be a frustrating investment.

US auto sales have boomed, setting records in both 2015 and 2016, and through this expansion, GM has been steadily profitable, as consumers have favored full-size pickups and SUVs over low-margin passenger cars. The carmaker’s market-share position in the US is also solid: it’s the biggest carmaker, controlling nearly a fifth of the total market.

Again and again, analysts have pointed out that GM is undervalued relative to its earnings. The company has addressed this …read more

Source:: Business Insider