General Motors Company · NYSE:GM
General Motors — Proxy Contest (May 2017)
72 slides from General Motors's proxy contest presentation, May 11, 2017
Slide 1: Unlocking Value at GM: Shareholder Presentation
May 10, 2017 Unlocking Value at GM: Shareholder Presentation
Slide 2: Disclaimer
Disclaimer This presentation, the materials contained herein, and the views expressed herein (the “Presentation”) are for discussion and general informational purposes only. This Presentation does not have regard to the specific investment objective, financial situation, suitability, or the particul
Slide 3: Introduction
Introduction Greenlight Capital is a value-oriented, research-driven investment management firm We are a long-term stockholder of General Motors Company (“GM” or the “Company”) We are currently the 5th largest public holder, owning 3.6% of the common stock Our interests are aligned with those
Slide 4: Reasons for Greenlight's Investment in GM
Reasons for Greenlight’s Investment in GM GM is a great company that generates attractive cash flows and profits GM is particularly well situated in North America Leading market position in trucks, SUVs and CUVs, which are taking share from sedans Upcoming multi-year period of strong new pro
Slide 5: Rather than waiting for an eventual down-cycle...
Rather than waiting for an eventual down- cycle to demonstrate the fundamental strength of its business, we believe GM should pursue constructive steps to fix its substantial undervaluation Greenlight Capital, Inc.® 4
Slide 6: Reasons for Greenlight's Active Involvement
Reasons for Greenlight’s Active Involvement The Company has generated a total return of only 17% since its November 2010 IPO, compared to an average return of 147% from its OEM peers and an S&P 500 return of 133%(1) We believe this is in large part the result of a culture that is loath to disrup
Slide 7: GM's Stock Is Not Fairly Valued Today
GM’s Stock Is Not Fairly Valued Today Despite fundamentally strong operations, the stock has delivered poor returns since the Company’s IPO, and trades at a significant discount to intrinsic value The current P/E multiple (5.4x(1)) is the lowest in the S&P 500, and among the lowest of all global
Slide 8: Where Are We Today? Adjusted EBIT
Where Are We Today? Heading Despite strong operating performance . . . 51% $13.0 Growth 51% Growth $12.0 $11.0 $10.0 Adjusted EBIT ($ in billions) $9.0 Management guidance for 2017 to be $8.0 flat to up vs. 2016 $7.0 $6.0 $5.0 $4.0 2011 2012 2013 2014 2015 2016 2017 E . Source: Public Filings Greenl
Slide 9: Shareholders Are Still Awaiting Upside
Shareholders Are Still Awaiting Upside . . . Shareholders have not been rewarded since the 2010 IPO, despite an equity bull market Cumulative Total Return Since GM IPO Through May 5, 2017 General Motors 170% S&P 500 Index 150% (1) 147% Selected OEM Peers - Mean 130% 132% 133% 110% 90% 70% 50% 30% 17
Slide 10: GM Trades at the Lowest P/E Ratio Among the S&P 500
GM Trades at the Lowest P/E Ratio Among the S&P 500 and the Second Lowest Among Global Automobile Manufacturers P/E Ratio P/E Ratio Global Automobile Manufacturers 2017E Lowest P/E Ratio Stocks Among S&P 500 2017E Fiat Chrysler Automobiles NV 5.2x General Motors Co 5.4x(1) General Motors Co 5.4x(1)
Slide 11: GM Isn't Getting Credit for Its Strong Dividend Commitment
GM Isn’t Getting Credit for Its Strong Dividend Commitment… GM has an outsized dividend yield relative to GM has already made a strong commitment to its conservative payout ratio maintain the current dividend through the cycle Dividend Yield Payout Ratio “[GM will]…maintain the [current $1.52 per
Slide 12: Even as GM's Cash Balance Specifically Reserves for Dividends
…Even as GM’s Cash Balance Specifically Reserves for Dividends GM Presentation (September 21, 2016) GM’s target cash includes a stockpile to cover 2 years of dividends in a downturn without requiring any draw on the $14.5 billion revolver Source: GM Presentation, September 21, 2016 Greenlight Capita
Slide 13: Plan to Unlock Value
Plan to Unlock Value We believe there is a solution to unlock value that does not affect GM’s underlying operations or financial flexibility GM should distribute, on a tax-free basis, a second class of common stock that we call the “Dividend Shares” The Dividend Shares would be entitled to tod
Slide 14: Our Proposed Solution: Creating Two Classes of Common Stock
Our Proposed Solution: Creating Two Classes of Common Stock Ticker The Dividend Shares Entitled to a $1.52 per share dividend (consistent with GM’s current dividend) Dividends are received ahead of distributions to GMD(1) Capital Appreciation Shares Appeal to yield-oriented investors Tax-Free,
Slide 15: Valuing the Two Classes
Valuing the Two Classes We believe our structural solution will lead to GM being more appropriately valued in the capital markets The Dividend Shares will be attractive to yield-oriented investors; our work indicates that they will trade with a 7% – 9% yield The Capital Appreciation Shares wil
Slide 16: Our Proposed Shares
Our Proposed Shares The Dividend Shares The Capital Appreciation Shares Ticker GMD GM Distribution Tax-free distribution of one Dividend Share for Holders continue to own their existing GM stock Mechanism every share of GM outstanding Features Separate class of common stock entitled to S
Slide 17: Benefits
Benefits Our Plan does not affect GM’s corporate strategy and will improve its financial flexibility We are not advocating for any change to GM’s capital allocation policy, including capital devoted to balance sheet cash, dividends or share repurchases We believe our solution will lower GM’s c
Slide 18: The New Structure Is Relatively Simple to Implement
The New Structure Is Relatively Simple to Implement GM will need to meet formally with the rating agencies, advocate for the new structure and explain that it is consistent with GM’s stated financial policy and superior from a capital markets perspective We expect no issues with NYSE listing of
Slide 19: Our Perspective on the Value of the Dividend Shares
Our Perspective on the Value of the Dividend Shares Compare the Dividend Shares to other equities that trade primarily on a yield basis MLPs: A review of publicly-traded MLPs suggests average dividend yields of 6% to 6.5% for BBB-rated issuers and 7.5% to 8.5% for BB-rated issuers MLPs are gen
Slide 20: Our Perspective on the Value of the Dividend Shares (cont.)
Our Perspective on the Value of the Dividend Shares (cont.) The implied yield on the Dividend Shares is derived by benchmarking to the current 5.5% yield-to-maturity on GM’s ~30-year senior unsecured notes and adjusting for incremental features The “bridge” adjusts for: Duration Dividend Sha
Slide 21: Valuing the Dividend Shares
Valuing the Dividend Shares We believe our solution will lead to GM being more fairly valued in the capital markets The Dividend Shares will be attractive to yield-oriented investors Our work indicates that they will trade with a 7% - 9% yield Assumed Yield on Dividend Shares 9.0% 8.0% 7.0% Im
Slide 22: Our Perspective on the Value of the Capital Appreciation Shares
Our Perspective on the Value of the Capital Appreciation Shares The Capital Appreciation Shares will be attractive to value- and growth-focused investors We believe they will be valued based on a P/E multiple, and we value them conservatively at GM’s current depressed 5.4x 2017E P/E multiple H
Slide 23: Buybacks Will Have a Greater Impact
Buybacks Will Have a Greater Impact “Greenlight’s proposal…would not increase value for shareholders.” – GM Presentation, May 4, 2017 GM has never shared its valuation analysis with Greenlight or the investing public. However, let’s presume that GM’s claim is accurate GM’s public guidance sugges
Slide 24: Buybacks Will Have a Greater Impact (cont.)
Buybacks Will Have a Greater Impact (cont.) Impact from GM Share Repurchases Common Shares Capital Appreciation Shares Capital Appreciation Shares (Status Quo) (GM Implied Value) (Greenlight Low Value) Share Price(1) $33.77 $14.77 $25.56 Market Capitalization ($ in billions) $51.7 $22.6 $39.2 2017 +
Slide 25: Buybacks Will Have a Greater Impact (cont.)
Buybacks Will Have a Greater Impact (cont.) GM is wrong: the value of its shares should go up under our Plan The market won’t let GM buy back 55% of the Capital Appreciation Shares in less than 2 years at 1.6x earnings The market probably won’t let GM buyback 32% of the Capital Appreciation Sh
Slide 26: Valuing the Capital Appreciation Shares
Valuing the Capital Appreciation Shares A more effective buyback will accelerate EPS growth, resulting in a higher P/E Nissan: 7.1x Ford: 7.2x Hyundai: 7.2x Mazda: 7.4x Daimler: 7.7x Above 8x: Assumed P/E Multiple on Capital Appreciation Shares 5.4x(1) 7.0x 8.0x • Peugeot 2017E EPS(2) $6.25 $6.25
Slide 27: Valuing the Two Classes
Valuing the Two Classes The combined value of the Dividend Shares and the Capital Appreciation Shares leads to significant price appreciation compared to the current share price of $33.77(1) Low Mid High Range Range Range Implied Value Per Dividend Share $16.89 $19.00 $21.71 Implied Value Per Capi
Slide 28: Our Plan is Minimally Invasive
Our Plan is Minimally Invasive Our Plan advocates no change to GM’s current operational strategy Our Plan leaves GM’s financial policy intact relative to capital allocation priorities previously communicated by GM management Changes to GM’s Financial Policy GM’s Current Financial Policy(1) Under
Slide 29: Why are management and the Board rejecting an idea...
Why are management and the Board rejecting an idea that doesn’t change the business, unlocks significant value and increases strategic and financial flexibility? Greenlight Capital, Inc.® 28
Slide 30: GM's Opposition to Our Plan is Meritless
GM’s Opposition to Our Plan is Meritless We presented this idea to management and to the Company’s financial advisors in September and October of 2016 We believe the idea was rejected as a result of a “not invented here” culture, coupled with the belief that it was unprecedented. This led to fla
Slide 31: Fundamental Factors Driving GM's Valuation
Fundamental Factors Driving GM’s Valuation “The fundamental factors driving GM’s valuation are NOT addressed by Greenlight’s proposed financial engineering.” – GM Letter to Shareholders, April 24, 2017 We obviously disagree, but this leads to a broader question: what is GM doing proactively to addre
Slide 32: GM is Literally Waiting for the Next Down-Cycle
GM is Literally Waiting for the Next Down-Cycle GM’s Plan Greenlight’s Plan Nothing can be done about the Long-term shareholders shouldn’t have to undervalued share price for several more be so patient. We believe that our Plan will years, because investors need to witness the unlock the latent valu
Slide 33: GM's Spin to Convince Shareholders
GM’s Spin to Convince Shareholders In its April 24, 2017 Letter to Shareholders, GM used the following language to describe its accomplishments: “Strong track record of value creation” “Sustainable long-term value for shareholders” “Board…with the expertise necessary to drive shareholder val
Slide 34: Greenlight's "Experiment in Financial Engineering"
Greenlight’s “Experiment in Financial Engineering” In February 2013, Greenlight proposed that Apple reduce its cost of capital and unlock shareholder value within the context of its existing constraints by distributing ‘iPrefs’ to its shareholders At the time, Apple had $137 billion in cash, no
Slide 35: The Benefits of Improving the Cost of and Access to Capital
The Benefits of Improving the Cost of and Access to Capital Our Plan will lower GM’s overall cost of capital by creating a higher multiple common equity class more aligned with income-oriented investor objectives A lower cost of capital will increase GM’s value and enhance its financial flexibil
Slide 36: The Benefits of Improving the Cost of and Access to Capital (cont.)
The Benefits of Improving the Cost of and Access to Capital (cont.) Cheaper and more plentiful capital will allow GM to better manage its risks and to prosper in the global automotive sector, enabling: Investments in newer technologies for electrification, autonomous driving and ride-sharing – i
Slide 37: GM management seems pleased obtaining negative credit rating commentary
GM management seems pleased obtaining negative credit rating commentary to avoid dealing with our Plan, but as shareholders you should be outraged Greenlight Capital, Inc.® 36
Slide 38: The Credit Rating Red Herring
The Credit Rating Red Herring GM has been unable or unwilling to understand the essence of our Plan Accordingly, it has been unable or unwilling to accurately explain the Plan to the credit rating agencies If we (or frankly most other Fortune 100 management teams) were explaining this Plan to
Slide 39: GM is Hiding Behind the Credit Rating Agencies
GM is Hiding Behind the Credit Rating Agencies During our interactions with GM management, we asked for their permission to engage multiple credit rating agencies in a formal process – at our own expense GM repeatedly refused this request GM then interacted with the rating agencies and refused
Slide 40: GM Wants it Both Ways
GM Wants it Both Ways GM Story to Rating Agencies GM Story to Shareholders GM tries to elicit a negative reaction by creating “The proposed Dividend Shares lack both a term sheet and a narrative that implies that the earnings upside participation and downside Dividend Shares have downside protection
Slide 41: And GM is Still Misleading its Own Shareholders on the Ratings Question
… And GM is Still Misleading its Own Shareholders on the Ratings Question “Our analysis of the proposal was objective and thorough and included active participation by our CEO, CFO and Board over a seven-month period.” - GM Letter to Shareholders, April 24, 2017 “We also formally engaged with the ma
Slide 42: Ratings Question (cont.): GM's Redline of Our Term Sheet
… And GM is Still Misleading its Own Shareholders on the Ratings Question (cont.) Term GM’s Redline of Our Term Sheet Issuance One Dividend Share to be issued via dividend for each share of existing Common Stock (the “Capital Appreciation Shares”). The Capital Appreciation Shares will have the same
Slide 43: Ratings Question (cont.): Agency Statements
… And GM is Still Misleading its Own Shareholders on the Ratings Question (cont.) “Greenlight’s proposal…would result in a downgrade of GM’s credit rating” - GM Press Release, May 4, 2017 S&P stated, “If GM were to create a dual-class common structure, as proposed by Greenlight Capital, we could c
Slide 44: Shareholders Should Demand an Open and Iterative Process
Shareholders Should Demand an Open and Iterative Process As a large and long-term shareholder of GM, Greenlight does not advocate taking any action that puts GM in harm’s way or results in a downgrade to non-investment grade Importantly, our Plan in no way represents a material “departure from c
Slide 45: GM Also Resists Our Plan On Governance Grounds
GM Also Resists Our Plan On Governance Grounds We are simply proposing that GM take the existing economic and governance rights of the current common stock and split it into two common equities, better aligned with investor objectives This is a commonplace capital markets occurrence, with a myri
Slide 46: The Bottom Line
The Bottom Line The election is not just about our Plan, it is about having appropriate leadership at the Board level The Board should be held accountable for GM’s long-term shareholder returns The Board does not seem to have appropriate expertise to evaluate our Plan The directors’ engagement
Slide 47: The Board has Personally Invested Very Little in GM
The Board has Personally Invested Very Little in GM The previous positions held by GM directors … Yet this wealth has not made its way into suggests that they are wealthy individuals… GM’s stock Years on Shares Value of Shares Director Board Purchased Purchased Chairman & CEO of Cummins, 11 years
Slide 48: Highly Qualified Board Nominees
Highly Qualified Board Nominees Our proposed director nominees are outstanding candidates who will supplement the strengths of the existing Board and merit inclusion regardless of our Plan Greenlight Capital, Inc.® 47
Slide 49: Our Board Nominees
Our Board Nominees Our Board nominees collectively possess substantial investing, business leadership, financial analytics and board experience Long tenure serving at the helm of major media organizations (TCI, Leo Hindery, Jr. Liberty, AT&T Broadband, YES Network, C-SPAN) Managing Partner, Inte
Slide 50: Who Would You Rather Have in the Board Room?
Who Would You Rather Have in the Board Room? Greenlight’s Director Nominees GM’s Directors (Focus on Shareholder Value) (Status Quo) Nominated by Greenlight, which owns 0.02% as a group Ownership 3.6% of GM common stock Shareholder Demonstrable track record of driving 2.4% GM annual total sh
Slide 51: Appendix: Additional Rating Agency Considerations
Appendix: Additional Rating Agency Considerations Greenlight Capital, Inc.® 50
Slide 52: Greenlight's Plan does not propose a cumulative dividend
Greenlight’s Plan does not propose a cumulative dividend Greenlight Capital, Inc.® 51
Slide 53: GM Obfuscates the Issue
GM Obfuscates the Issue GM stated in its proxy statement that “the dividend payable on the Dividend Shares [is] cumulative and significantly limit[s] our financial flexibility” GM falsely indicated in its public March 28th presentation that the Dividend Shares have a “cumulative dividend” and wo
Slide 54: Dividends are Not Cumulative
Dividends are Not Cumulative Dividends would be declared quarterly at the discretion of the Board of Directors, consistent with normal corporate practices for common stock dividends, exactly as GM does today Undeclared dividends would not create a liability on the balance sheet Undeclared divi
Slide 55: Characteristics of Cumulative Dividends when not Paid
Characteristics of Cumulative Dividends when not Paid The Company has an obligation to accrue them, even when they aren’t paid The liquidation preference would increase within the financial statements They give rise to a priority claim in bankruptcy The Dividend Shares lack all of these featur
Slide 56: How a Waterfall Works
How a Waterfall Works The Board determines if there are funds to be distributed to common equity holders The rights and priorities of which common equity holders get what are established by a waterfall GM would declare dividends on the Dividend Shares, up to an amount such that the aggregate d
Slide 57: Greenlight's proposed Dividend Shares are common equity
Greenlight's proposed Dividend Shares are common equity Greenlight Capital, Inc.® 56
Slide 58: Dividend Shares are Common Equity
Dividend Shares are Common Equity They are pari passu with Capital Appreciation Shares in a bankruptcy or liquidation They have the same loss absorption capacity as the Capital Appreciation Shares Rank junior to any and all existing or future debt and preferred securities No stated principal
Slide 59: Dividend Shares are Common Equity, Not Hybrid Securities
Dividend Shares are Common Equity, Not Hybrid Securities Moody’s Policy regarding rating Hybrid Securities “In our first look at a hybrid to determine the amount of equity credit to be assigned, we focus on if it is…a preferred security or subordinated debt”(1) “…[P]referred securities are …ve
Slide 60: Dividend Shares are Common Equity, Not Hybrid Securities (cont.)
Dividend Shares are Common Equity, Not Hybrid Securities (cont.) However, our Dividend Shares Are common equity and pari passu with Capital Appreciation Shares in a bankruptcy or liquidation Have no concept or prospect of principal recovery/repayment (i.e. no maturity and not redeemable) Are
Slide 61: Greenlight's Plan does not pose a major or unique corporate governance challenge
Greenlight’s Plan does not pose a major or unique corporate governance challenge Greenlight Capital, Inc.® 60
Slide 62: Two Classes of Common Shares are Commonplace
Two Classes of Common Shares are Commonplace We are simply proposing that GM take the existing economic and governance rights of the current common equity and split it into two common equities, better aligned with investor objectives. This is a commonplace capital markets occurrence, with a myriad
Slide 63: Not an Unprecedented Plan – Tracking Stocks Have the Same Issues
This is Not an Unprecedented Plan from a Governance Perspective – Tracking Stocks Have the Same Issues Issuer Event Credit Rating Rating Commentary Georgia- Distribution to its Baa2 Moody’s (9/18/1997): “The creation of the new Pacific shareholders of a new (unchanged) stock will have no impact
Slide 64: Not an Unprecedented Plan – Tracking Stocks (cont.)
This is Not an Unprecedented Plan from a Governance Perspective – Tracking Stocks Have the Same Issues (cont.) Issuer Event Credit Rating Rating Commentary Liberty Issuance of stock tied to BB+ Fitch (11/10/2005): “Fitch does not expect the Media performance of the QVC (unchanged) creation of a
Slide 65: Greenlight annotations to GM's annotations of term sheet
Greenlight annotations to GM’s annotations of Greenlight’s annotations of GM’s modification to Greenlight’s term sheet Greenlight Capital, Inc.® 64
Slide 66: Greenlight Capital, Inc. ®
Greenlight Capital, Inc.® 65
Slide 67: Greenlight Capital, Inc. ®
Greenlight Capital, Inc.® 66
Slide 68: Greenlight Capital, Inc. ®
Greenlight Capital, Inc.® 67
Slide 69: Greenlight Capital, Inc. ®
Greenlight Capital, Inc.® 68
Slide 70: Appendix: Total Shareholder Return ("TSR") Analysis
Appendix: Total Shareholder Return (“TSR”) Analysis Greenlight Capital, Inc.® 69
Slide 71: GM Has Consistently Underperformed its OEM Peers and the S&P 500
GM Has Consistently Underperformed its OEM Peers and the S&P 500 Our peer group is the entire OEM peer set that sell automobiles globally, and is not cherry picked to improve relative comparisons Cumulative Total Return Over Designated Periods as of May 5, 2017 180% art Title 160% General Motors 1
Slide 72: Important Information About This Proxy Solicitation
Important Information About This Proxy Solicitation Greenlight Capital, Inc., Greenlight Capital, L.P., DME Advisors, LP, DME Capital Management, LP, DME Advisors GP, LLC, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offsho