General Motors Co. (NYSE: GM) shareholders will vote Tuesday on whether to accept a proposal put forward by David Einhorn’s Greenlight Capital to establish a dual-share structure for the automaker and to put three Greenlight nominees on the company’s board of directors. The outlook for success is not promising.
Greenlight approached GM last fall with the idea of creating so-called Dividend Shares that pay a guaranteed dividend of $1.52 per year and Capital Appreciation Shares that pay no dividend. Both classes would trade publicly and the Capital Appreciation Shares would have 10 times the voting power of the Dividend Shares.
GM rejected the idea on several occasions and two major investor advisory firms, Glass Lewis and Institutional Shareholder Services (ISS), have recommended that shareholders vote against the dual-class structure. ISS, according to a GM press release, said the value creation of Greenlight’s proposal is uncertain “and there has been no market endorsement (as GM share price remained flat after the proposal was made public).”
Glass Lewis commented:
[Greenlight] argues that post-split, the capital appreciation stock would trade for the same forward multiple that GM shares trade for today. We question this assumption, as the stock narrative would continue to be the same … and the stock would offer no dividend yield support. … As such, we considered it reasonable to assume that GM’s capital appreciation stock could trade below the current 5.5x NTM [next 12 months] P/E.
Greenlight, which owns about 3.6% of GM’s outstanding common stock, has also nominated three candidates for GM’s 11-person board of directors. Because neither supports the stock-class change, neither ISS nor Glass Lewis supports a change to the board. ISS said:
[C]onsidering that the dissident’s dual class share proposal does not warrant shareholder support, the dissident has not made a compelling case that change at the board level focusing on the implementation of its proposal is warranted.
All in all, GM’s Tuesday shareholders’ meeting is shaping up to be a lot quieter than it might have been. The company’s shares traded down about 0.2% late Monday morning, at $34.37 in a 52-week range of $27.34 to $38.55. The consensus price target on the stock is $40.25.