Greenlight Capital, the fifth largest shareholder in General Motors, is all set to bring about a major overhaul in the American auto maker's structure but shareholders hold the power to make or break the proposal. Greenlight holds about 3.6% stake in the company and is focused on ensuring that some new names are brought onto its board. The hedge fund's stance is that the board that is currently in position is not capable of taking the business to greater heights or better profitability. This is not a new stance to come to light on GM's board, which has been at the receiving end of much criticism for not initiating any major overhaul here in years.
GM roots for its board of directors
Meanwhile, the company has given its vote of confidence for its current board members. The automaker said on the company website that the directors represent 'the best mix' of qualification to 'serve the shareholder interests'. Interestingly, the statement mentioned how the board was focused on long- term value creation. Viewed in the light of Greenlight's criticism about GM being completely unconcerned about its $34.45 stock value, only negligibly up from the $33 that shares sold for at the company's 2010 IPO, it seems clear why there is such focus on 'long term value' in GM's statement.
Greenlight had categorically pinpointed this apparent disinterest by the automaker, in its letter to shareholders. It stated that the stagnant stock price is a problem that GM appears determined to ignore. Leading from this, Greenlight has put forth a proposal to replace three directors who currently sit on the company's board. The idea is to bring in 'new blood' to the company which will help drive it forward at a more acceptable pace, Greenlight believes.
The hedge fund proposes to split the company's stock apart from bringing about changes in the board. It believes that this move could improve the company's market cap by nearly $40 billion, which is an impressive figure indeed. Meanwhile, at GM, efforts are underway to shore up the stock price by cutting costs and improving focus on profitable segments of the market. Whether these will yield the desired results is yet to be seen but before that can happen, the shareholders will have to make their decision on the Greenlight proposal at the General Motor's annual shareholders meet.