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GM would boost share value with more flavors, activist investor says

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Einhorn: “Imagine if you sold chocolate, vanilla, or swirl, in any combination that you want. That ice cream stand would attract more customers.” Photo credit: BLOOMBERG

UPDATED: 6/2/17 4:13 pm ET – adds closing share price

Forget car salesmen. General Motors Co. should think a little more like ice cream vendors, according to billionaire hedge fund manager David Einhorn.

Einhorn has been waging a months-long battle with GM to get the largest U.S. automaker to split its stock into two classes — one would collect on the company’s dividend, and the other would capture the value of its earnings. Taking up this proposal would draw more investors to the shares, the president of Greenlight Capital said Friday.

GM is much like “an ice cream stand that sells just vanilla-chocolate swirl,” Einhorn said in a Bloomberg Television interview. “Imagine if you sold chocolate, vanilla, or swirl, in any combination that you want. That ice cream stand would attract more customers.”

GM’s board has cast doubt on whether Greenlight’s pitch would create value for shareholders and has warned of risk to the automaker’s credit ratings. Einhorn’s push underscores the challenge Chief Executive Officer Mary Barra faces in translating GM’s record profits into a higher stock price. The carmaker still trades around its 2010 initial public offering price even as the S&P 500 Index has more than doubled during that period.

Push back

Proxy advisory firms Institutional Shareholder Services and Glass Lewis have recommended shareholders vote against Einhorn’s proposal.

“By now, we believe it is clear that ISS, Glass Lewis, and the broader market have conclusively rejected Greenlight’s high risk idea because it is fundamentally flawed, would not deliver the value Greenlight predicts, and is not in the best interest of GM and its shareholders,” GM spokesman David Barnas said in an emailed statement.

Greenlight has estimated that splitting GM’s stock would lead to a combined value of between $42 and $60 per existing share, compared with Thursday’s closing price of $34.43. GM shares rose 2 cents to close at $34.45 on Friday in New York trading.

Einhorn first presented Greenlight’s proposal to GM in the fall. The automaker reviewed it for several months, only to find ways to shoot it down, he said. That’s when he went public.

“The truth of the matter is they never really engaged in it,” Einhorn said. “They took a little of a not-invented-here attitude and they just fought what we’ve done from the very, very beginning.”

GM strengths

Greenlight has held GM shares since early 2011 and owns a 3.6 percent stake, data compiled by Bloomberg show. According to Einhorn, the company’s management has done several major things right.

“But one area where GM is weak is in its capital structure,” he said. “It’s weak in finance and it has a balance sheet which is fundamentally too conservative for the value that’s being created in the operations to be unlocked.”

GM’s caution stems from the company’s bankruptcy in 2009 and its desire to avoid ever being back in that position, Einhorn said. That trepidation leaves GM fighting “the last war.”

Einhorn offered mixed reviews of GM’s management, calling Chief Financial Officer Chuck Stevens “a little bit weak” and Barra a “wonderful CEO.” Financial expertise, however, is the “one area where she’s not as strong.”

The automaker rejected Einhorn’s criticism. “The current GM board is composed of outstanding leaders who are the right people, with the directly relevant professional experience and expertise, to continue driving this momentum,” Barnas said.

GM’s board and management are “driving a plan of fundamental change that is working,” he said, delivering three years of record results and a projected $25 billion in shareholder returns from 2012 through 2017.

Shareholders will vote on Einhorn’s proposal at GM’s annual meeting on June 6.

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