WHEN: Today, Tuesday, March 28th
WHERE: CNBC's "Fast Money Halftime Report"
Following is the unofficial transcript of a FIRST ON CNBC interview with Greenlight Capital Founder David Einhorn on CNBC's "Fast Money Halftime Report" (M-F, 12PM-1PM ET) today, Tuesday, March 28th. Following are links to the interview on CNBC.com:http://video.cnbc.com/gallery/?video=3000605258 and http://video.cnbc.com/gallery/?video=3000605269.
All references must be sourced to CNBC.
SCOTT WAPNER: AND WELCOME TO HALFTIME REPORT I'M SCOTT WAPNER. WE BEGIN THIS HOUR WITH BREAKING NEWS. HEDGE FUND MANAGER DAVID EINHORN TURNING UP THE HEAT ON GENERAL MOTORS WITH A PLAN HE SAYS WOULD RAISE THE COMPANY'S STOCK PRICES. THE STOCK IS RISING THIS HOUR ON MR EINHORN'S PROPOSAL AND DAVID EINHORN JOINS US NOW ON THE PHONE. WELCOME BACK TO THE SHOW. GOOD TO HAVE YOU.
DAVID EINHORN: THANKS. NICE TO BE HERE.
WAPNER: YOU WANT TO SPLIT GM STOCK INTO TWO CLASSES, WHICH YOU SAY WOULD UNLOCK SUBSTANTIAL VALUE FOR SHAREHOLDERS DIVIDEND SHARES AND CAPITAL APPRECIATION SHARES. WHY IS THIS THE RIGHT PLAN FOR GENERAL MOTORS TODAY?
EINHORN: IT'S THE RIGHT PLAN BECAUSE GENERAL MOTOR'S STOCK IS CONFRONTING A VERY UNUSUAL DYNAMIC. IT TRADES BELOW ITS MULTIPLE IN THE S&P 500. THE PE IS LESS THAN SIX. THEY PAY OUT A DIVIDEND YIELD, WHICH IS MORE THAN 4%. WHICH PUTS IT AMONG THE HIGHEST AND FURTHER, THEY'RE ONLY PAYING OUT ABOUT QUARTER OF THEIR EARNINGS, SO IT'S VERY UNUSUAL FOR SUCH A HIGH YIELDING STOCK TO HAVE SUCH A LOW DIVIDEND PAYOUT RATIO. WHICH LEADS US TO THINK THERE'S SOME INVESTORS THAT JUST WANT IT FOR THE DIVIDENDS AND DON'T CARE ABOUT THE OTHER 75% OF THE EARNINGS. AND THERE'S OTHER INVESTORS THAT CARE ABOUT THE EARNINGS, BUT NOT THAT MUCH ABOUT THE DIVIDEND AND SO, WHEN YOU BUY GM STOCK, YOU'RE JUST KIND OF STUCK WITH HALF THAT YOU LIKE AND HALF YOU DON'T REALLY LIKE. SO OUR IDEA IS ESSENTIALLY TO PAY THE SAME MONEY TO THE SAME PEOPLE JUST DO IT IN TWO DIFFERENT --, THAT WAY EVERYBODY CAN HAVE WHAT THEY WANT. IT DOESN'T CHANGE ANYTHING ELSE ABOUT WHAT'S GOING ON AT THE COM[ANY, BUT WHEN YOU DO SOME PRETTY SIMPLE VALUATION ANALYSIS, IF ACTUALLY IMPLEMENTED THIS PLAN, WHICH WE EXPECT THEY WILL, YOU'RE GOING TO UNLOCK A TREMENDOUS AMOUNT OF VALUE. WHAT'S UNCERTAIN IS WHETHER THEY'LL UNLOCK THE LOWER END OF OUR RANGE, WHICH WILL MAYBE BE $13 BILLION OF VALUE OR THE HIGHER END OF OUR RANGE, WHICH MIGHT BE $36 BILLION OF VALUE.
WAPNER: GM IS REJECTING THE IDEA AS YOU PROBABLY HAVE ALREADY HEARD, THEY SAY IT'S UNPRECEDENTED AND UNTESTED. THEY SAY IT CREATES RISKS THAT ARE UNACCEPTABLE TO SHAREHOLDERS. THE COMPANY SAID IN THE LAST FEW MOMENTS, IT WOULD HAVE NO POSITIVE EFFECT ON THE BUSINESS AND WOULD LEAD TO A CREDIT RATING CUT. HOW DO YOU RESPOND TO THAT?
EINHORN: WELL LET'S LOOK AT IT IN TWO PARTS. FIRST OF ALL, LOWERING A COMPANY'S COST OF CAPITAL AND IMPROVING ITS FINANCIAL FLEXIBILITY WHICH THIS WOULD DO IS AN IMPROVEMENT TO THE BUSINESS. IT ALLOWS THE COMPANY TO FACE WHATEVER CHALLENGES AND OPPORTUNITIES IT HAS FROM A STRONGER POSITION BY HAVING A LOWER COST OF CAPITAL. IT'S A CORE FUNCTION OF BOARDS OF DIRECTORS TO FIGURE OUT WHAT'S THE RIGHT BALANCE SHEET. HOW DO YOU OPTIMIZE BOTH THE COST OF CAPITAL AND HOW SHOULD IT BE CONSTITUTED SO AS TO CREATE OPPORTUNITIES TO FUND ITSELF ON THE MOST EFFECTIVE BASIS GOING FORWARD. THE CREDIT RATING ISSUE I THINK IS VERY MUCH A RED HERRING. IT'S UNPRECEDENTED FOR CREDIT RATING AGENCIES TO CARE ABOUT WHETHER THERE'S TWO CLASSES OF STOCK OR HOW COMMON EQUITY IS DIVIDED BETWEEN DIVIDENDS OR CAPITAL APPRECIATION BUYBACKS AND SO FORTH. THE COMPANY I THINK HAS HAD INFORMAL CONVERSATIONS WITH THE RATING AGENCIES FROM THE WAY THEY'VE REPORTED IT TO US. THEY APPROACHED THE IDEA WITH THE ENTHUSIASM OF A 7-YEAR-OLD CONFRONTED WITH A PLATE OF RAW OYSTERS AND FURTHER, I THINK THEY'VE KIND OF MISREPRESENTED WHAT WE SHOWED TO THEM TO THE RATING AGENCIES. WE'VE OFFERED AT OUR EXPENSE TO GO TO THE RATING AGENCIES, GET A FORMAL OPINION THAT THERE WOULD NOT BE A CREDIT RATING IMPACT AND THE RATING AGENCIES HAVE AGREED TO DO THAT, BUT IT REQUIRES GM TO CONSENT. SO, IF GM WANTED TO GET TO THE TRUTH OF THE MATTER, THEY WOULD CONSENT AND LET US GO TO THE CREDIT RATING AGENCIES AND DETERMINE ONCE AND FOR ALL THERE WOULD NOT BE A NEGATIVE IMPACT ON THEIR CREDIT RATING, WHICH WOULD BE THE NORMAL POLICY OF THE CREDIT RATING AGENCIES RELATING TO SECURITIES THAT ARE COMMON EQUITY.
WAPNER: WHAT WOULD YOU SAY TO THOSE WHO WOULD QUESTION HOW THESE TWO CLASSES OF STOCK WOULD ACTUALLY PERFORM, WHETHER THERE WAS ENOUGH DEMAND FOR TWO CLASSES? IF YOU TAKE FOR EXAMPLE THE DIVIDEND OUT OF THE CAPITAL APPRECIATION PART OF THE BUSINESS, WOULD THERE BE ENOUGH DEMAND AND WOULDN'T INVESTORS IN A SENSE BE INVESTING IN THE SAME EARNINGS AS THEY ARE NOW IN THE OTHER CLASS?
EINHORN: OF COURSE THEY ARE. I WOULD COMPARE IT TO AN ICE CREAM STAND. THAT JUST SERVES CHOCOLATE AND VANILLA SWIRL ICE CREAM. IF YOU GAVE INVESTORS MORE CHOICE, SOME PEOPLE LIKE CHOCOLATE. SOME LIKE VANILLA. SOME LIKE SWIRL. IF YOU IMPLEMENTED OUR POLICY, YOU WOULD WIND UP WITH ONE SHARE OF EACH, SO IF YOU LIKE THE SWIRL THAT YOU HAVE TODAY, YOU CAN KEEP IT. IF YOU WOULD LIKE MORE DIVIDENDS, YOU COULD SELL THE CAPITAL APPRECIATION SHARES AND BUY THE DIVIDEND SHARES. IF YOU LIKE THE CAPITAL APPRECIATION, THE LOW MULTIPLE, SELL THE DIVIDEND AND BUY THE CAPITAL APPRECIATION SHARES. THE MARKET WOULD SORT ITSELF OUT AND COME UP WITH THE VALUES, THE FACT IS IN ORDER FOR THIS NOT TO UNLOCK A LOT OF VALUE, THE PE WOULD HAVE TO CONTRACT DRAMATICALLY ON THE CAPITAL APPRECIATION SHARES AND THE PROBLEM WITH THAT IS BECAUSE ONCE YOU DO THE DISTRIBUTION OF THE DIVIDEND SHARES, THE MARKET CAP OF THE CAPITAL APPRECIATION SHARES WOULD SHRINK. THE COMPANY HAS ALREADY SAID IT'S GOING TO DEDICATE SEVERAL BILLION DOLLARS A YEAR TO SHARE REPURCHASE. THE SHARE REPURCHASE WOULD BE ON A LOWER CAPITAL BASE. IT WOULD HAVE A BIGGER IMPACT. YOU WOULD DRIVE DOWN THE SHARE COUNT FASTER. SO, EVEN IF THE PE MULTIPLE STAYS STEADY, YOU'RE GOING TO WIND UP WITH A FASTER EARNINGS PER SHARE GROWTH. IMPLEMENTING THE EXISTING CAPITAL ALLOCATION POLICY OF THE BUYBACK ON THE CAPITAL APPRECIATION SHARES AND WERE THE VALUE TO FALL THE WAY GM IS SPECULATING, THE NUMBERS ACTUALLY BECOME RATHER ABSURD. EFFECTIVELY, THEY'D BE ABLE TO BUY BACK THE ENTIRE COMPANY WITHIN JUST A FEW YEARS.
WAPNER: LET ME ASK YOU, JUST FUNDAMENTALLY, WHY HAVE THE SHARES UNDERPERFORMED IN THE MANNER WHICH THEY HAVE? I HAVE AN INVESTOR ON THE SET WITH US TODAY WHO SAYS THAT LOOKING AT GENERAL MOTORS HAS BEEN LIKE WATCHING PAINT DRY. YOU'VE GOT 17.5 MILLION VEHICLES ANNUALIZED. THE AUTO BUSINESS BY ALL MEASURES IN METRICS HAS BEEN DOING INCREDIBLY WELL. YET WHY HAS THIS STOCK UNDERPERFORMED?
EINHORN: WELL, LOOK, TO WHAT THE MARKET IS THINKING OR WHY IS MARKET DOING WHAT IT'S DOING, IT HAS ITS DIFFERENCES OF OPINIONS RELATING TO THE PROSPECTS FOR THE COMPANY, THE TECHNOLOGICAL INNOVATION, WHERE THEY ARE IN THE CYCLE AND SO FORTH. AND GM HIGHLIGHTS THESE AS REASONS TO IGNORE WHAT WE ARE TALKING ABOUT. IN OTHER WORDS SAYING DON'T PAY ATTENTION TO THE GREENLIGHT PROPOSAL BECAUSE IT DOESN'T REALLY ADDRESS THOSE OTHER ISSUES. AND WHILE THAT'S TRUE, THE FACT STILL REMAINS THAT THE COMPANY IS RESPONSIBLE FOR ITS CAPITAL STRUCTURE. IT'S A CORE FUNCTION OF THE BOARD, AND THE BOARD SHOULD LOOK AT THIS IN A MORE CONSTRUCTIVE FASHION AND FIGURE OUT HOW TO LOWER ITS COST OF CAPITAL, RAISE ITS VALUE, UNLOCK VALUE FOR SHAREHOLDERS AND GIVE THE COMPANY THE BETTER FINANCIAL AND OPERATIONAL FLEXIBILITY GOING FORWARD.
WAPNER: YOU THINK MARY BARRA IS DOING A GOOD JOB, DAVID? BARRON'S, COINCIDENTALLY, JUST PUT HER ON THE COVER OF THEIR WORLD'S GREATEST CEOs ISSUE THIS WEEKEND AND SHE'S A NEW ADDITION, AS I SAID, ON THE COVER AS WELL.
EINHORN: NOT WITHSTANDING HER OBJECTION TO OUR IDEA, WE'RE SUPPORTIVE OF MARY BARRA.
WAPNER: YEAH. BUT YOU'RE GOING TO PUSH THIS TO THE ANNUAL MEETING, CORRECT?
EINHORN: WELL, WE HAVEN'T DETERMINED THAT FOR SURE, BUT IT DOES SEEM TO BE POINTING IN THAT DIRECTION.
WAPNER: YOU'VE ALSO NOMINATED, WHAT, FOUR FOLKS TO THE BOARD WHICH GM, TODAY, JUST BEFORE WE CAME ON THE AIR, SAID IT WON'T RECOMMEND ANY OF YOUR SLATE.
EINHORN: YOU KNOW, WE HAVE SENT THEM A NOTICE OF NOMINATION FOR THE DIRECTORS. WE HAVE NOT YET DETERMINED HOW MANY OR WHICH DIRECTORS WE WILL RUN IN A CONTEST LATER. WE'RE GOING TO WAIT A LITTLE WHILE FOR GM TO FILE THEIR PROXY AND SO FORTH.
WAPNER: DO YOU THINK THAT WE ARE AT PIQUE AUTO?
EINHORN: I ACTUALLY THINK I'M PRETTY BULLISH ON THE AUTO CYCLE. I THINK THAT, LOOK, THERE ARE ANECDOTES OF, YOU KNOW, FUNNY BEHAVIOR WITH SOME OF THE FINANCING, AND LEAST RESIDUALS AND THE REST OF IT. BUT WHEN YOU THINK ABOUT WHAT PEOPLE THINK ABOUT IN TERMS OF THE TRUMP ECONOMY IF YOU WOULD, THE GOAL FOCUSES ON JOBS. WE ALREADY HAVE A LOW UNEMPLOYMENT RATE. YOU'RE GOING TO HAVE A LOT OF JOBS. YOU'RE GOING TO HAVE HIGHER WAGES BECAUSE YOU'RE GOING TO HAVE MAYBE A LABOR SHORTAGE. PLUS, YOU'RE GOING TO HAVE HIGHER INTEREST INCOME BECAUSE THE FED IS RAISING INTEREST RATES. ALL OF THIS IS VERY POSITIVE FOR A PERSONAL INCOME. AND IF YOU HAVE HIGH LEVELS OF PERSONAL INCOME, I THINK YOU'RE GOING TO WIND UP WITH HIGH LEVELS OF DEMAND FOR NEW CARS AND ALSO, BETTER THAN EXPECTED PERFORMANCE IN THE CREDIT SUBSIDIARY.
WAPNER: I WANT TO BE CLEAR –
EINHORN: I THINK INVESTORS ARE VERY FOCUSED ON THINGS LIKE INFRASTRUCTURE STOCKS WHEN REALLY, I THINK, IF YOU BELIEVE THE TRUMP STORY, YOU SHOULD BE INVESTING IN CONSUMER DURABLES, LIKE AUTOS.
WAPNER: WELL, I MEAN, YEAH AND YOU HAVE AT LEAST FROM WHAT WE CAN GATHER FROM WHAT YOU'VE SAID IN YOUR LETTERS EVEN AT THE BEGINNING OF THE YEAR, THAT YOU ARE A BELIEVER IN THESE SO-CALLED TRUMP STOCKS. ARE YOU STILL? YOU SAID THAT YOU WERE LONG A "VARIETY OF LOW MULTIPLE TAX PAYING U.S. VALUE STOCKS." THAT'S STILL HOW YOU VIEW THIS MARKET IN IT BEING THE BEST WAYS TO MAKE MONEY?
EINHORN: I STAND BY THAT, YES. THAT'S OUR PORTFOLIO.
WAPNER: -- DILLARDS, DSW, THEY ARE STILL THE ONES THAT YOU BELIEVE –
EINHORN: YEAH, I'M NOT GOING TO TALK TO EACH OF THE SPECIFIC STOCKS, BUT THEMATICALLY, THAT'S CORRECT.
WAPNER: WOULD YOU TALK AT LEAST TO APPLE? ARE YOU STILL AN OWNER OF APPLE?
EINHORN: WE ARE STILL AN OWNER OF APPLE, BUT THAT'S NOT REALLY THE TOPIC FOR TODAY.
WAPNER: I UNDERSTAND. AND I JUST WANT TO MAKE CLEAR WITH GENERAL MOTORS, YOU'RE NOT QUESTIONING THE CAPITAL ALLOCATION STRATEGY AS WAS RAISED BY OTHER ACTIVISTS IN THE PAST THAT GOT GENERAL MOTORS TO RAISE ITS BUYBACK, CORRECT? ARE YOU HAPPY WITH THE WAY THAT THIS COMPANY IS ACTUALLY ALLOCATING ITS CAPITAL?
EINHORN: YOU KNOW, THAT'S NOT THE POINT OF TODAY'S EXERCISE. THERE COULD BE FURTHER DISCUSSION ON THOSE KINDS OF TOPICS. BUT WHAT WE TRY TO DO SOMETIMES IN THINKING ABOUT PROPOSALS SUCH AS THIS IS WHAT IS IT THAT WE CAN DO THAT IS THE LEAST INVASIVE TO THE WAY THE COMPANY IS ALREADY RUNNING THE BUSINESS. SO THE COMPANY HAS ALREADY SAID THAT THERE'S 2.3 BILLION AVAILABLE TO DIVIDENDS FOR SHAREHOLDERS, AND THAT THERE'S SEVERAL BILLION DOLLARS A YEAR AVAILABLE TO SHAREHOLDERS AND BUYBACKS. WE JUST THINK THAT WERE YOU TO IMPLEMENT A DUAL CLASS STRUCTURE TO ALLOW EACH SHAREHOLDER TO RECEIVE WHAT IT IS THAT THEY WANT, YOU WOULD BE MUCH MORE EFFECTIVE IN DRIVING VALUE WITH THE MONEY THAT'S ALREADY BEEN EARMARKED FOR SHAREHOLDERS.
WAPNER: DO YOU THINK THAT MARY BARRA IS RUNNING THAT BUSINESS IN THE MOST EFFICIENT WAY? I MEAN, THEY CERTAINLY HAVE RID THEMSELVES OF ASSETS. YOU POINT OUT IN YOUR PRESENTATION TODAY THAT THEY HAVE A STRONG OPERATING PERFORMANCE AND I KNOW YOU SAID DESPITE THE FACT THAT THEY DISAGREE WITH WHAT YOU'RE PROPOSING TODAY, YOU ARE A SUPPORTER OF MARY BARRA?
EINHORN: YES, THAT'S CORRECT.
WAPNER: DAVID, WE APPRECIATE YOUR TIME VERY MUCH. THANKS FOR CALLING IN TODAY.
EINHORN: THANKS, SCOTT.
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