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ANOMALY OF A SUCCESSFUL COMPANY WITH A LACKLUSTER STOCK PRICE. LET'S START WITH THE PROBLEM. WHAT IS YOUR ANALYSIS OF THE PROBLEM? WHY HAS THE STOCK PRICE NOT REFLECTED A FAIRLY SUCCESSFUL OPERATION? >> I THINK G.M. IS STRONG IN A NUMBER OF AREAS OF ITS BUSINESS AND HIS MADE GOOD MOVES TO POSITION ITSELF WELL FOR THE FUTURE. THERE ARE LOTS OF AREAS IN OPERATING AN AUTOMOBILE COMPANY. ONE AREA WHERE G.M. IS WEAK IS IN ITS CAPITAL STRUCTURE. IT IS WEAK IN FINANCE AND HAS A BALANCE SHEET TOO CONSERVATIVE. THE COMPANY HAS A MARKET CAP OF ABOUT $50 BILLION. THEY HAVE $20 BILLION IN CASH. THEY HAVE ANOTHER $14 BILLION. THEY HAVE A FEW BILLION DOLLARS MORE IN CASH OFFSHORE IN PLACES LIKE CHINA THAT IS NOT EVEN COUNTED. WITH SO MUCH VALUE LOCKED IN CASH PRESERVING FOR THE DOWNSIDE, IT LEAVES AND INEFFICIENT CAPITAL STRUCTURE FOR THE COMPANY. SHAREHOLDERS HAVE BEEN REWARDED WITH THE LOWEST MULTIPLE IN THE ENTIRE S&P 500. IT TRADES AT A HUGE DISCOUNT EVEN TO FORD. TO HAVE FORD'S MULTIPLE, THE STOCK WOULD BE 30-40% HIGHER. SOMETHING NEEDS TO BE DONE TO UNLOCK THE VALUE AT G.M. DAVID: IS THAT IS THE DIAGNOSIS? WHY HAVE THEY NOT ADDRESSED IT? MARY KNOWS THERE IS A PROBLEM. SHE HAS A TEAM AROUND HER. WHY HAVEN'T THEY ADDRESSED IT? >> I THINK THERE IS CARING ABOUT A STOCK PRICE AND "CARING" ABOUT A STOCK PRICE. I COULD LOSE THE LAST FIVE POUNDS BUT DO I CARE ENOUGH TO CHANGE MY DIET AND EXERCISE TO DO THAT? WHERE I WOULD RATHER HAVE FIVE POUNDS LESS, I AM NOT WILLING TO DO THAT. G.M. WOULD PREFER A HIGHER STOCK PRICE BUT NOT WILLING TO DO WHAT IT TAKES TO MAKE THAT HAPPEN. DAVID: IS ALSO POSSIBLE THEY ARE SCARRED FROM THE EXPENSE OF GOING BANKRUPT AND HAVING COME BACK INTO THE MARKETPLACE AND SAYING WE NEED MONEY FOR A RAINY DAY? MIGHT THEY BE RIGHT ABOUT THAT? >> SURE. THE COMPANY HAS SAID THEY ARE FOREVER GRATEFUL TO THE UNITED STATES FOR BAILING THEM OUT AND PRESERVING THE COMPANY THROUGH THE LAST RECESSION. THE COMPANY IS CAPITALIZED TO MAKE SURE THAT POSITIVELY NEVER HAPPENS AGAIN. I THINK THERE ARE SEVERAL WAYS TO GET AT THAT THING. ONE IS YOU COULD DECIDE YOU ARE FIGHTING THE LAST WAR AND CHANGER BALANCE SHEET TO MAKE IT MORE CONDUCIVE TO THE CURRENT BUSINESS AND COST STRUCTURE OF THE COMPANY WHICH HAS STRUCTURALLY IMPROVED WHICH WOULD REQUIRE MUCH LESS LIQUIDITY IN CASH. OR YOU COULD DO SOMETHING KIND OF CLEVER. WE HAVE A CLEVER PROPOSAL WE HAVE MADE WHICH ALLOWS THE COMPANY TO KEEP ALL OF ITS CASH, ALL OF ITS RAINY DAY MONEY, TO HAVE ITS PRESERVATION FOR ANY FUTURE DOWNTURN THAT COMES THE EXACT SAME WAY THEY HAVE IT NOW, BUT WOULD UNLOCK THE VALUE AT G.M. DAVID: TAKE US THROUGH THAT CLEVER PLAN. IT INVOLVES TWO CLASSES OF STOCK. WHAT ARE THOSE CLASSES? >> WE ARE SAYING YOU HAVE A STOCK RIGHT NOW. AS THE OWNERS, YOU GET DIVIDENDS AND ALL THE OTHER VALUES OF OWNERSHIP. IF YOU SEPARATED OUT THE VALUE OF THE DIVIDENDS FROM ALL THE OTHER VALUES, YOU WOULD UNLOCK 30-50% INCREASE IN THE VALUES OF THE STOCK. DAVID: THERE IS A DIVIDEND SHARE AND A GROWTH SHARE. >> CORRECT. DAVID: EACH SHAREHOLDER WOULD GET ONE OF EACH? >> ONE OF EACH. IT WOULD HAVE THE SAME DIVIDEND NOW IN THE SAME GROWTH. BUT IF YOU WANTED TO COME YOU COULD TRADE ONE OR THE OTHER. THE RESULT IS PEOPLE WHO ARE MORE INTERESTED IN DIVIDENDS, HE WOULD HAVE NEW BUYERS FOR THOSE DIVIDEND SHARES. AND ALTERNATIVELY, IF YOU'RE NOT INTERESTED IN THE DIVIDEND BUT THE GROWTH, YOU WOULD BUY THE OTHER SHARES. DAVID: IF THE MARKET WERE WORKING PROPERLY, THE VALUE OF THOSE TWO SHARES SHOULD EQUAL THE VALUE OF THE ONE NOW. YOU IN YOUR PROPOSAL SAY YOU THINK THERE IS A FAIR AMOUNT OF UPSIDE. WHY IS THAT? >> IT HAS TO DO WITH CHOICE. THINK OF IT AS AN ICE CREAM STAND THAT SELLS JUST VANILLA/CHOCOLATE SWIRL. SOME PEOPLE LIKE VANILLA/CHOCOLATE SWIRL. WE WILL CALL THOSE THE G.M. SHAREHOLDERS. IMAGINE IF YOU SOLD CHOCOLATE, VANILLA, OR SWIRL IN ANY COMBINATION YOU WANT. THE ICE CREAM STAND WOULD ATTRACT MORE CUSTOMERS. PEOPLE WOULD BE INTERESTED IN THE INCOME FEATURE OF THE DIVIDEND. THEY WOULD BUY THE DIVIDEND SHARES. THOSE WOULD BE NEW PARTICIPANTS IN THE MARKET. THEY WOULD BID THEM WE THINK TO A 7% TO 9% YIELD. THERE ARE PEOPLE NOT INTERESTED IN THE DIVIDEND BUT WANT TO SEE THE STOCK A LOT. THEY WOULD BUY THE GROWTH SHARES. WE THINK THAT WE TRADE AT ABOUT THE SAME NOW. ADDING THE MATH TOGETHER WOULD UNLOCK THE VALUE. EITHER CHOICE WOULD BRING IN NEW INVESTORS. DAVID: YOU TOOK THAT MATTHEW MARY BARRA AND HER TEAM -- YOU TOOK THAT MATH TO MARY BARRA AND HER TEAM. WHY DID THEY NOT WANT TO DO IT? >> I THINK THEY NEVER REALLY ENGAGED IN IT. THEY HAVE DONE FROM THE VERY BEGINNING -- THEY HAVE FOUGHT WHAT WE HAVE DONE FROM THE BEGINNING. WHAT WE WANTED WAS A COLLABORATIVE PROCESS TO SOLVE THE BALANCE SHEET PROCESS -- PROBLEM AT G.M. IN ADDITION TO OUR PLAN UP FOR THE SHAREHOLDER MEETING NEXT WEEK, WE HAVE NOMINATED THREE DIRECTORS THAT BRING IN ENORMOUS CAPITAL MARKETS SOPHISTICATION WHICH IS NOT PRESENT AT G.M. I THINK THE C.F.O. IS A LITTLE WEAK. MARY BARRA IS A WONDERFUL C.E.O. BUT FINANCE IS ONE AREA WHERE SHE IS NOT AS STRONG AS OTHER AREAS. I THINK THE BOARD LACKS THIS LEVEL OF FINANCIAL EXPERTISE. IF THE SHAREHOLDERS VOTE THEM ON, WE WERE BRINGING IN THREE PEOPLE WHO ARE GOOD IN THIS AREA. ONE IS THE C.E.O. WITH JOHN MALONE FOR ALL THOSE YEARS. HE DID ALL KINDS OF CLEVER THINGS WITH THEIR BALANCE SHEET TO MINIMIZE THE COST OF CAPITAL. MINIMIZING COST OF CAPITAL IS IMPORTANT BECAUSE G.M. NEEDS TO ACCESS CAPITAL TO FUND ITSELF. THAT IS A BASIC FUNCTION OF A BUSINESS. THAT IS WHY YOU BRING IN THAT KIND OF EXPERTISE. WE HAVE MEAL THORNDIKE -- NEAL THORNDIKE WHO WROTE "THE OUTSIDERS." AND MY PARTNER WHO IS A GENIUS AT CAPITAL ASSET PRICING MODEL'S. DAVID: HAS THIS EVER BEEN DONE IN ANY OF THE COMPANY SUCCESSFULLY, THIS SORT OF RESTRUCTURING? >> MANY COMPANIES HAVE DIVIDED EQUITY INTERESTS. THERE ARE ALL KINDS OF COMPANIES THAT HAVE TRANSFORMED THEIR BUSINESSES TO CREATE ONE STREAM OF INCOME AND ANOTHER STREAM OF CAPITAL APPRECIATION. DAVID: IF YOU ARE THE C.E.O. AND HAVE THIS HAPPEN, PRESUMABLY, YOU COULD SELL WANT TO KEEP THE OTHERS. HOW DO YOU AVOID A CONFLICT OF INTEREST? AS YOU MAKE A DECISION, CASH GETS SHORTER. HOW DO YOU MAKE A DECISION THAT DOES NOT FAVOR ONE GROUP OVER THE OTHER? >> THE DIVIDEND IS STABLE. G.M. PAYS OUT A LITTLE OVER TWO MAIN DOLLARS IN DIVIDENDS. THAT IS WHAT WOULD HAPPEN IN THIS PROPOSAL. FIRST $20 MILLION ON THE BALANCE SHEET. EIGHT YEARS OF DIVIDENDS. THE ANSWER TO THE DIVIDEND IS YOU JUST PAY THE DIVIDEND. BOARDS OF DIRECTORS ARE PAID HUNDREDS OF THOUSANDS OF DOLLARS A YEAR TO BALANCE OUT COMPETING INTERESTS OF DIFFERENT STAKEHOLDERS. THOSE COULD BE SUPPLIERS, WORKERS, MANAGERS, EXECUTIVES, CUSTOMERS, DEALERS, REGULATORS, THE GENERAL PUBLIC, CREDITORS, AND SHAREHOLDERS. THE IDEA THIS BOARD THINKS THE CORPORATE EVIDENCE CONCERN IS SO MUCH THEY SHOULD REJECT A PLAN THAT WOULD INCREASE THE STOCK PRICE BY 30% TO 50% OVER A POTENTIAL CONFLICT BASICALLY SAYS THIS BOARD IS NOT ENGAGED TO DO HIS JOB. DAVID: IT APPEARS IT IS NOT JUST MANAGEMENT THAT HAS NOT BEEN ENTHUSIASTIC ABOUT THIS. THE MARKET OVERALL HAS NOT RESPONDED. WHEN YOU CAME OUT WITH THIS PROPOSAL, THE MARKET DID NOT PICK G.M. SHARES UP. ISN'T THE MARKET AT LEAST QUESTIONING WHAT YOU ARE PROPOSING? >> THERE IS NO DOUBT ABOUT THAT. G.M. IS SPENDING $50 MILLION TO PEDAL THE BARRICADES ON THEIR OWN STOCK --THE BEAR PRICE ON THEIR OWN STOCK. THEY ARE SAYING WE CAN DO NOTHING ABOUT IT. WE ARE AN AUTO COMPANY AT THE TOP OF THE CYCLE. NOTHING CAN BE DONE UNTIL WE GET TO THE DOWNTURN. IF YOU DON'T LIKE THAT, YOU SHOULD SELL THE STOCK. THEY HAVE BEEN RUNNING AROUND TO SHAREHOLDERS PITCHING THE BEAR CASE ON THEIR OWN STOCK SAYING AND INNOVATION -- ANY INNOVATION IS TOO RISKY TO COME CONTEMPLATE. PEOPLE ARE SENSING FEAR AS OPPOSED TO OPTIMISM FROM MANAGEMENT. I THINK THAT IS HAVING A NEGATIVE IMPACT ON THE STOCK. DAVID: WE ARE TALKING WITH DAVID EINHORN ABOUT HIS PROPOSAL FOR GENERAL MOTORS. WE HAD IN A PROMINENT AUTO ANALYST FOR MORGAN STANLEY THE DAY BEFORE YESTERDAY. AND TALKING ABOUT THE RELATIVE VALUE OF TESLA AND GENERAL MOTORS, HE SAID IF YOU GAVE ME $20 BILLION TO GET TO EITHER ELON MUSK OR MARY BARRA I WOULD GIVE IT TO ELON MUSK. THAT WAS HIS RESPONSE. WHAT IS YOUR RESPONSE TO THAT BECAUSE YOU HAVE A SHORT POSITION ON TESLA? >> I THINK IT IS A QUESTION WHAT THE PURPOSE OF THE $20 BILLION IS. IF IT IS TO EARN A PROFIT AND RETURN, I THINK YOU WOULD GIVE IT TO MARY BARRA BECAUSE G.M. IS INTERESTED IN ITS RETURN ON CAPITAL. THEY ARE TRYING TO MAKE ABOUT A 20% RETURN ON INVESTED CAPITAL. THAT IS A WONDERFUL RETURN ON $20 BILLION TO THE EXTENT THEY WERE ABLE TO DEPLOY IT. IS THE PURPOSE OF A BUSINESS IS TO ADVANCE THE FUTURE, TO HAVE SCIENCE EXPERIMENTS AND COOL BUZZWORD THINGS, YOU WOULD GET TO TESLA BECAUSE YOU HAVE A GUY WHO HAS DONE ALL KINDS OF FANCY INNOVATION AND IS THINKING ABOUT HOW SOCIETY SHOULD BE 50 YEARS FROM NOW. BUT HE HAS YET TO TAKE ANY MONEY AND TURN IT INTO A PROFITABLE BUSINESS. I DON'T HAVE ANY OPTIMISM THAT WILL CHANGE. DAVID: YOU MAY BE RIGHT. WE WILL FIND OUT ABOUT TESLA. THEY SEEM TO BE A LOT OF INVESTORS WILLING TO GIVE HIM MORE MONEY TO DO SCIENCE EXPERIMENTS OR WHATEVER HE IS DOING. HOW MUCH COMMITMENT DO YOU HAVE TO HAVE AS AN INVESTOR? WHEN YOU GO SHORT ON TESLA, THAT CAN GET PAINFUL. >> TESLA IS ONE OF MANY THINGS WE HAVE IN OUR BUBBLE BASKET OF STOCKS WE THINK ARE MISPRICED BY HUGE AMOUNTS. IT GIVES US THE ABILITY TO WAIT A FAIR AMOUNT OF TIME TO BE PROVEN RIGHT OR WRONG. I THINK EVENTUALLY THE MOOD OF THE MARKET WILL CHANGE. EVENTUALLY, THE COMPANY WILL BE CALLED INTO ACCOUNT TO DEMONSTRATE PROFITABILITY. I DON'T KNOW WHEN THAT WILL HAPPEN. THE PORTFOLIO IS POSITIONED PROPERLY RELATIVE TO RISK AND REWARD. DAVID: YOU HAVE A LARGE POSITION IN GENERAL MOTORS. YOU OWN 3.6% OF THE SHARES. >> MUCH LARGER THAN OUR TESLA SHORT. DAVID: EXACTLY. IF YOU DON'T GET YOUR FREE MEMBERS ON THE BOARD AND YOUR PLAN DOES NOT GO FORWARD, WHAT DO YOU DO WITH THAT POSITION IN GENERAL MOTORS? >> OUR INVESTMENT IN GENERAL MOTORS GOES BACK BEFORE WE STARTED. BASICALLY BOUGHT THE STOCK IN 2011. WE DID SELL IT A LITTLE WHILE AROUND THE IGNITION RECALL ISSUE. BASICALLY, WE HAVE BEEN LARGE HOLDERS OF THE STOCK FOR SIX YEARS. OUR INVESTMENT THESIS IS NOT PREDICATED ON THIS PLAN BEING PUT INTO PLACE WHERE OUR DIRECTORS BEING NOMINATED. THOSE ARE THINGS THAT CAME UP ALONG THE WAY AS PART OF A MULTIYEAR INVESTMENT WE HAVE HAD IN G.M. I WOULD LOOK TO APPLE WHERE WE HAD A SIMILAR EXPERIENCE TALKING ABOUT AN IDEA WE ADVANCED A FEW YEARS AGO. EVEN THOUGH THEY DID NOT DO EXACTLY WHAT WE WANTED, THEY DID CHANGE THE CAPITAL POLICY AND UNLOCKED A LOT OF VALUE. WE ARE STILL LARGE HOLDERS OF APPLE TODAY ALTHOUGH WE HAVE REDUCED THE POSITION SOME. DAVID: I'M GLAD YOU RAISED APPLE. THERE WAS AN EXTRAORDINARY STOCK BUYBACK GOT A LOT OF CASH INTO SHAREHOLDERS' HANDS. WITH THAT SATISFY YOU WITH GENERAL MOTORS? >> WITH APPLE, THEY HAD A PROBLEM WITH CAPITAL ALLOCATION. THEY WERE STORING CASH AND RETURNING THEM TO SHAREHOLDERS. WE HAD AN IDEA THAT SOME THOUGHT WAS TOO CLEVER. THEY CHANGED THEIR CONSTRAINTS. THEY PREVIOUSLY SAID WE ARE NOT BUYING BACK STOCK. SINCE THEN, THEY HAVE BOUGHT BACK 1/4 OF THE STOCK AT LESS THAN $100 PER SHARE. THE NET OF CASH WAS EXPANDED FROM SEVEN TO 13 BECAUSE THEY HAVE A BETTER CAPITAL ALLOCATION POLICY TODAY. G.M. HAS A SIMILAR INEFFICIENT BALANCE SHEET. THEY HAVE SAID THERE ARE CONSTRAINTS BECAUSE THEY WANT TO RETAIN ALL OF THIS MONEY FOR A POTENTIAL RAINY DAY. THERE ARE SEVERAL WAYS TO GET AT THIS. HOUR PURPOSE ELECTED DIRECTORS IS TO GET THAT PROBLEM. IT COULD BE THROUGH THE PLAN AND PROPOSAL OR IT COULD BE AN ALTERNATE SOLUTION. WHEN YOU LOOK AT G.M. AND SEE YOUR POSITIVE 30-YEAR DEBT IS 5.25% AND YOUR COST OF EQUITY IS 20%, THAT IS TOO BIG OF A GAP AND SOMETHING NEEDS TO BE DONE TO CLOSE THAT. DAVID: YOU ARE A LONG/SHORT INVESTOR. HAVE HAD EXTRAORDINARY SUCCESS THROUGH YOUR CAREER, LEGENDARY SUCCESS. IT HAS NOT BEEN EASY THE LAST LITTLE WHILE. YOU ARE NOT ALONE IN THAT. OTHER HEDGE FUNDS HAVE BEEN STRUGGLING. YOU ARE AN EXPERT. DOES THAT TELL US SOMETHING LARGER ABOUT THAT WAY OF INVESTING OR IS THIS A TEMPORARY ABERRATION? >> I BELIEVE IT IS CYCLICAL. CERTAIN TYPES OF STOCKS TO BETTER THAN OTHER TYPES. WE ARE PROBABLY ABOUT THREE YEARS INTO A. PERIOD THAT HAS BEEN A HEADWIND FOR OUR STYLE OF INVESTING. DAVID: IS IT DOES IT PUT PRESSURE ON YOU IN TERMS OF INVESTING AND FEES PAID? DO YOU FEEL PRESSURE? >> I HAVE BEEN VERY LUCKY IN MY CAREER. WHEN WE STARTED GREEN LIGHT IN 1996 WITH $1 MILLION, I NEVER ENVISIONED IT WOULD BE CLOSE TO WHAT IT HAS TURNED OUT TO BE. WHEN WE REACHED $100 MILLION, I THOUGHT WE HIT SUCCESS I NEVER WOULD HAVE IMAGINED. SINCE THEN, I HAVE NEVER CARED ABOUT THE SIZE OF THE FUND. IT WILL GO UP OR DOWN. WE HAVE BEEN OPEN FOR NEW INVESTMENT FOR MANY YEARS. MY GOAL IS NOT TO MANAGE THE MOST MONEY. MY JOB IS TO DO A GOOD JOB WITH THE MONEY WE DO MANAGE. DAVID: GOING BACK TO GENERAL MOTORS, IF YOU ARE SUCCESSFUL, WILL IT BE BECAUSE MARY BARRA CHANGES HER MIND OR BECAUSE YOU