How Einhorn Lost His Big GM Bet

How Einhorn Lost His Big GM Bet

There was a time not so long ago when hedge fund billionaire David Einhorn’s activist battles against companies like Apple and Lehman Brothers reverberated across Wall Street. But on Tuesday Einhorn’s investor challenge at General Motors was thoroughly demolished by the automaker’s CEO Mary Barra.

GM shareholders voted overwhelmingly to reject Einhorn’s dual-class common stock structure with 91% of the votes cast against the proposal. The shares cast by Einhorn’s Greenlight Capital hedge fund were just about the only votes supporting the dual-class idea—96% of the non-Greenlight votes cast rejected Einhorn’s proposal.

Einhorn did not do much better in his effort to get three directors onto GM’s board. GM shareholders elected all 11 of GM’s board nominees, who received between 84% and 99% of the votes cast.

“We appreciate the significant support of our shareholders as we continue to transform GM and increase the value of their investment,” Barra said in a statement.

GM shareholders are in Detroit today for the company’s annual meeting. Einhorn had hoped shareholders would support his idea to dramatically change GM’s capital structure by splitting the company’s stock into two classes as part of a new capital allocation plan.

GM’s stock has been stuck in neutral for years and Einhorn argued that some investors would be enticed by one class of stock that would receive GM’s dividends while other investors would be attracted to another class of stock that would be more growth oriented. Einhorn is a longtime GM shareholder and his hedge fund added to its position in the months leading up to his activist effort.

But GM’s management and board was ultimately not receptive to Einhorn’s idea, saying it would risk the company’s investment grade credit rating and that the financial engineering would be a business distraction and governance challenge.

Einhorn’s hedge fund has been struggling in recent years together with the vast majority of the hedge fund industry. His ability to exercise his will on Wall Street also appears to have taken a hit.

"We are disappointed that shareholders have elected to maintain the status quo," Einhorn said in a statement. "We congratulate GM’s management on their win today."

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