Despite the investments in technology, GM’s stock was mired around its recent IPO price for a long time, frustrating shareholders. Calls for buybacks ensued and the company even engaged in a proxy battle earlier this year, decidedly defeating David Einhorn and his ‘Don’t Call It Preferred Stock But That’s What It Is’ proposal. The stock has recently been on somewhat of a tear, but one suggestion to ‘unlock’ value that continues to float around calls for GM to spinoff its ‘mobility’ division.
Earlier this month, Deutsche Bank’s Rod Lache made waves when he said that the company didn’t outright refute his spinoff suggestion. That and he thinks the ‘mobility business by itself may be worth $20 a share’ or roughly $30b. He also argued that GM’s AV business will be ready soon and will have a material impact on the company. You can say that again. Others who have made the same call are less bullish. For example, Morgan Stanley’s Adam Jonas thinks the business could be worth $4b and that piece also cites RBC’s Joseph Spak who thinks it could be worth $6 per share.
Either way, GM President Dan Ammann shot down the rumors last week stating that ‘all of our focus right now is on moving as fast as we can to get to commercial deployment of this technology in the safest way possible…We believe the best way to do that is having all the capability under one roof’. Despite investor enthusiasm for spinoffs, it’s not hard to see that being the case and for it to make long term strategic sense. Ammann further added that the company ‘is moving faster than foes on autonomous cars because it has the in-house capability to engineer, develop and manufacture vehicles using advanced software.’ If true, that would also be a long term benefit.
If there was consensus regarding the valuation at around $30b, it would be hard to stop the spinoff momentum (unless the share price, you know, actually reflected such a value). Part of the difference of opinion might be explained by how some envision the future of the automotive industry and the role of the current OEM’s within it. Many believe the current OEMs role will be diminished with some even going as far as saying that they will just be metal benders making the cars without providing much value add. Basically, the OEMs are dinosaurs on the verge of extinction and in that scenario, spinning off the ‘good’ business and allowing it to compete in the right arena makes sense. Not surprisingly, the OEMs likely don’t share that view and Mr. Ammann added that ‘GM envisions controlling and operating its own self-driving car-sharing service and said this could be significantly more profitable than its existing business.’
The recent share price boost will likely temper the calls and for now, management will continue on its current path. The WSJ notes that the recent boost in share price suggests that shareholders are finally embracing GM’s technological chops. There are plenty of challenges ahead though including a tough sales environment today and of course, figuring out how to actually make money in the future. One step at a time. For those interested in spinoffs though, there are a number currently planned in the industry though, including Delphi’s (DLPH) powertrain business. Others, such as Autoliv, are also in talks about potential spinoffs. There have also been plenty of rumors swirling around Fiat Chrysler (FCAU), which already has plenty of recent experience with spinoffs. Things can change quickly though, which is quite a different atmosphere for an industry long known for its caution and slow pace.
Disclosure: Author currently owns shares of GM
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