Einhorn's GM Stock Split Fails as Holders Side With Barra

(Bloomberg) -- General Motors Co. shareholders sided with management and rejected billionaire David Einhorn's bid to split the company's stock, ending a months-long battle with the activist investor.

More than 91 percent of votes were cast against the proposal from Einhorn's Greenlight Capital, which sought to divide GM shares into two classes -- one collecting on the dividend and the other on the value of earnings. All 11 of GM's board members were approved, based on preliminary voting results released in a company statement.

The balloting capped about eight months of talks between GM and Einhorn with an endorsement for Chief Executive Officer Mary Barra, who was vocal in her opposition to Greenlight's proposal. She still has to find a way to boost GM's stock, which trades around its 2010 initial public offering price. GM slipped 0.8 percent to $34.18 as of 12:23 p.m. in New York trading.

“We appreciate the significant support of our shareholders as we continue to transform GM and increase the value of their investment,” Barra said in the statement, issued during the company's annual meeting in Detroit. “We value the perspectives of our shareholders and will continue to actively engage with them -- and relevant external experts -- as we enhance our core business, deploy capital to higher-return opportunities, and advance our leadership in the future of personal mobility.”

Greenlight's GM investment wasn't dependent on the hedge fund's plan being implemented, Einhorn told Bloomberg Television in an interview last week. As part of its proposal, the hedge fund had nominated one of its partners, Vinit Sethi, to serve as a GM director, along with private-equity firm executives Leo Hindery and William Thorndike.

“We are disappointed that shareholders have elected to maintain the status quo,” Einhorn said in a statement Tuesday. “GM should consider adding these individuals or others with similar financial market expertise to the board in the future.”

Talks between GM and Einhorn, whose Greenlight Capital owns a 3.6 percent stake, started cordially when he met with the company's executives in the fall. He argued the stock was undervalued and that issuing dividend shares would draw more investor interest.

Ratings Risk

Einhorn's proposal took a hit in March when credit ratings companies said the plan posed risk to GM's investment-grade ratings. Downgrades by the likes of Moody's Investors Service or S&P Global Ratings potentially would have made it more expensive for the company to borrow money if it needed cash in a downturn.

Proxy advisory firms Institutional Shareholder Services and Glass Lewis both recommended shareholders vote against Einhorn's proposal and his director slate, as did GM's board, which called the plan a “high risk idea.” Einhorn said in the Bloomberg Television interview last week that Chief Financial Officer Chuck Stevens was “a little weak” and claimed management didn't really understand the proposal.

Apple Case

Einhorn has stuck with investments in companies that have rebuffed him in the past. Greenlight sued Apple Inc. in February 2013 in an effort to get the company to issue preferred stock. Apple returned more cash to shareholders later that year, and Greenlight has maintained holdings in the company.

The Greenlight co-founder is better known for his short bets. He made a name for himself betting against Allied Capital Corp. and Lehman Brothers Holdings Inc. prior to their downfall. He became so well known for identifying profitable wagers against companies that shares of Herbalife Ltd. dropped more than 20 percent in a day after he popped up on the company's earnings call in 2012.

Barra was initially “intrigued” by Einhorn's proposal as a way to unlock value, she said during a briefing before the annual meeting. But after reviewing the plan, GM's management team deemed it too risky.

GM's stock is undervalued based on the company's performance, Barra told reporters. She said she can't explain why investors aren't more interested in the stock and that they'll eventually recognize the automaker if it keeps posting strong earnings.

“As we continue to take steps and create more proof points, I believe it will turn,” she said.

--With assistance from Simone Foxman

To contact the reporter on this story: David Welch in Southfield at dwelch12@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Anne Riley Moffat