Greenlight Capital is one of the main investors in General Motors. The hedge fund company has just released a report that intends to improve the relationship between auto manufacturer and its shareholders. The figures show that the operating performance has enjoyed incremental success over the past six years. Despite this, shareholders have not received any reward yet. To solve this issue, Greenlight Capital proposed to split the stock into two classes. However, General Motors rejected this share price boosting strategy.
The Two Classes Proposal Would Bring a $38 Billion Profit to Shareholders
On Tuesday, the executives at General Motors stated their position openly against the Greenlight Capital proposal. The billionaire investor David Einhorn proposed to split the common stock into two classes. One of them would focus value, while the other one solely on growth.
The CEO of the hedge fund company has even extrapolated the strategy and came up with a total profit of $38 billion for the gain of shareholders. Moreover, this strategy shows the potential of lowering the capital cost and boosting the flexibility of finances. However, Greenlight Capital took also the liberty to assume that it can name directors on its own.
General Motors Is still Recovering after the 2009 Bankruptcy Situation
General Motors rejected the proposal coming from Greenlight Capital hedge fund. The CEO, Mary Barra, has been streamlining and reducing activities outside the United States and China. While the sales were a little down, the return on investment and profitability has been increased. To respect her promise of giving investors 20% of returns or more, Barra minimized operations in Australia, Russia, Thailand, and Indonesia. Furthermore, the company gave away its unit in East Africa to Isuzu Motors Ltd. last February.
Despite all these efforts, the performance of the company is lower than its rivals. While General Motors trades at barely 5.8 times earnings, Ford Motor Co is at ten times. This situation rated the company at the lowest point in S&P 500. The company might try to address this sensitive issue with insurance. However, shareholders might continue to exert more pressure on the automaker to return more funds.
In light of the recent discussion, the GM stock increased by 2.7% to $35.64. The company is going to need a wider access to capital to follow its new technological ascension. Given the fact that it was only eight years ago when GM filed for Chapter 11 bankruptcy, the company should assess more carefully different risk factors.
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