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Greenlight's Einhorn says supportive of GM's Barra

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GM investor pitches two classifications of stock

General Motors Co. on Tuesday rejected a proposal by billionaire investor David Einhorn to split its common stock into two classes to help boost its share price. The fund intends to submit its plan for a vote at the company's annual meeting.

GM said its board of directors has carefully considered the plan but has rejected it, saying it creates "unacceptable risks".

Einhorn's plan for GM is similar to the plan he proposed to Apple Inc. Greenlight says the shares would appeal to and be valued for investors focused on GM growth.

Brian Johnson, a senior autos analyst at Barclays, said on "Power Lunch" on Tuesday that the proposed stock rearrangement only brought attention to the fact that GM and Ford are priced too low.

- Einhorn also has said he wants to nominate directors to GM's board.

Investors have also become disgruntled as their bullish thesis has fallen on deaf ears, since Wall Street refuses to value these automakers with even a halfway respectable price-to-earnings multiple. Some investors, he said, care only about the dividends, while others care only about the company's earnings.

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Einhorn downplayed GM's warning that the dual class structure could lead to a debt downgrade, calling the worry a "red herring" on CNBC.

Earlier this year, prior to the Opel/Vauxhall announcement, GM announced that it expects to deliver full-year 2017 EPS-diluted and EPS-diluted-adjusted of $6.00-$6.50; maintain or improve EBIT-adjusted and EBIT-adjusted margins; and generate higher revenues, compared to 2016. The proposal has merit because income investors looking exclusively at high-yield stocks could get their hands on GM's dividend shares without worrying about the automaker's potentially slowing growth story as US sales plateau. The dividend shares would trade separately from the current class of GM common stock and would receive all the current dividend payments. According to Greenlight, dividing General Motors shares into "dividend shares" and "capital appreciation shares" would divide investors into two groups with different goals: incomefocused investors, and value- and growth-focused investors. Our Plan would unlock significant value and lower GM's cost of capital.

Einhorn said GM's stock price has languished for years since emerging from the government-backed bankruptcy and is now trading at the lowest valuation in the S&P 500 stock index.

The company said it believes a two-class share structure would result in a loss of its investment-grade credit rating, which could cause profits at the automaker and its finance arm to fall by up to $2 billion and require $5 billion to $10 billion in additional cash on the balance sheet.

Barra has promised investors returns of 20 percent or more. The company plans to return about $7 billion in cash to shareholders this year.

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