After a preliminary count of votes by its shareholders, General Motors (NYSE:GM) said that a controversial dual-class stock proposal put forward by star hedge fund manager David Einhorn failed to pass at its shareholder meeting on June 6.
GM also said that all 11 nominees for its board of directors have been elected.
Who is David Einhorn and what was his proposal?
Einhorn is the manager of Greenlight Capital, which owns a 4.9% stake in GM. Like many GM shareholders (and GM management), Greenlight has been frustrated by GM's stalled stock price. While GM's profits have increased significantly over the last several years, GM's share price has been stuck close to $33, the price at which it returned to public markets in 2010.
In March of this year, Einhorn went public with a proposal that GM create two classes of shares: one would have a dividend, the other would be tied to GM's future growth. The idea was that the dividend stock would be especially rich, with a yield of 7% or more, while the growth stock would attract future-minded investors wary of GM's "legacy" business.
But GM argued emphatically that the proposal wasn't a good idea.
Why didn't GM support Einhorn's plan?
Einhorn argued that the plan would lower GM's cost of capital and boost its overall market cap by as much as $38 billion. GM refuted those arguments, citing serious concerns from two credit-rating agencies and noting that a lowered credit rating would raise its cost of capital and force it to hold a larger cash reserve.
Simply put, GM's argument was that Einhorn's proposal wouldn't do anything to improve the fundamentals of GM's business -- and it stood a good chance of hurting.
A large majority of GM shareholders apparently agreed: GM said that more than 91% of the votes cast were against the Greenlight proposal. (Full disclosure: Your humble Fool, a GM shareholder, voted against it for the reasons outlined in my colleague Adam Levine-Weinberg's excellent article here.)
What did GM say after the preliminary vote count?
CEO Mary Barra was conciliatory in a statement released after the preliminary count of the votes cast by GM shareholders:
On behalf of our Board and management, we appreciate the significant support of our shareholders as we continue to transform GM and increase the value of their investment.
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. We have strengthened our foundation and increased our flexibility which will allow us to take further action to maximize returns and enhance long-term value for our shareholders.
What were the results of the other questions put to GM shareholders?
GM said that all 11 of its director nominees were elected with between 84% and 99%. Results for the other questions on this year's slate were as follows:
- A proposal to "approve, on an advisory basis, Named Executive Officer compensation" passed
- Proposals to approve GM's short- and long-term incentive plans both passed
- Deloitte & Touche LLP was approved as GM's independent public accounting firm for 2017
- A separate independent shareholder proposal to request an independent chairman for GM's board of directors did not pass
What happens next?
Officially, the voting results tabulated by GM's proxy solicitor and released on June 6 were "preliminary." The results will be final after they're certified by an independent inspector; at that time, GM will file a Form 8-K with the results.