David Einhorn More Than Doubles His General Motors Long Position

| About: General Motors (GM)

Summary

David Einhorn's Greenlight Capital buys 25mln call options to more than double its GM long position.

David Einhorn's Greenlight Capital is now potentially 9th largest GM shareholder with 2.55% stake.

David Einhorn may exhibit activism at GM's next annual general meeting to unlock hidden value.

On January 27th, David Einhorn wrote about General Motors (NYSE:GM) in his quarterly letter to clients: "We have dramatically increased our GM position."

He further explained: "GM's valuation is extreme: at its year-end price of $34.84 per share, GM trades at less than 6x earnings. It is rare for a company to pay out only a quarter of its profits in dividends and still yield 4.4%. GM has substantial foreign operations that (other than China) barely contribute to profits and could improve over time. Finally, we believe that GM can unlock substantial value through modest changes to its capital structure."

So, it's pretty clear that he is very bullish on GM stock - but exactly how bullish is he?

Well, yesterday we managed to get further insight into the "dramatic" moves he made during Q4 2016, thanks to a publicly available 13F filing for the quarter, in which all his fund's buys and sells are outlined. The following table summarizes what was shown:

Position

Q3 2016

Q4 2016

QoQ Change

GM Common Stock

17,000,000 Shares

13,167,964 Shares

-3,832,036 Shares

GM Options

0 Call Options

25,000,000 Call Options

+25,000,000 Call Options

As you can see, Einhorn reduced his common stock position by about 3.8m shares, netting him around $130,000,000, and then reinvested in 25.0m call options with unknown strikes and maturities (strikes and maturities are unfortunately kept secret as part of a 13F filing). This means his fund now owns 0.88% of the company through common stock, and a further 1.67% through call options, making him potentially the 9th largest shareholder in the company with 2.55% combined.

This positioning indicates that Einhorn a) sees a lot of potential upside in the stock and thus believes that a sizable call option position would do better than the stock itself, and b) he's likely going to exhibit some form of activism over the coming months, especially at GM's next annual general meeting. This would allow him to potentially squeeze out higher returns for his call options by pushing for some fundamental changes at the company to unlock value. The fact that he publicly stated: "we believe that GM can unlock substantial value through modest changes to its capital structure" suggests that this is exactly what he is planning to do.

Either way, the next few months will certainly be very interesting for GM shareholders - my advice is this: keep your ears tuned for more rhetoric regarding GM stock coming from David Einhorn over the coming weeks and months. With his current positioning he is strongly motivated to shake up things and drive stock performance.

Disclosure: I am/we are long GM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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