Hayman Capital Said to Take Stake in GM as U.S. Exits

Bloomberg December 4, 2013 0

Hayman Capital Management LP has taken a stake in General Motors Co. (GM) , said a person familiar with the matter, indicating further investor confidence in the auto industry’s recovery as the U.S. winds down its ownership role

General Motors Headquarters

Hayman Capital Management LP has
taken a stake in General Motors Co. (GM), said a person familiar with
the matter, indicating further investor confidence in the auto
industry’s recovery as the U.S. winds down its ownership role.

Detroit is back. And GM could lead the way forward on the
equity front,” the Dallas-based fund founded by J. Kyle Bass
said in a presentation published on the website HVST.com. “GM
equity represents one of the most compelling risk/reward
situations of any large cap in the world today.”

The largest U.S. automaker should increase in value by more
than 40 percent in 12 to 18 months, Hayman Capital said in the
presentation. The stake in Detroit-based GM is one of the hedge
fund’s largest investments, said the person, who asked not to be
identified because the matter is private. Hayman declined to
disclose the size of its stake.

The U.S. Treasury expects to sell its remaining 31.1
million GM common shares by year-end, depending on market
conditions, the government said last month. The sale would come
after almost half a decade of U.S. government oversight
following its 2008 bailout and 2009 bankruptcy. Bass, known for
his prescient bet against subprime home mortgages before the
financial crisis, said the U.S. exit is a trigger for the stock.

“The U.S. government will be out of the way before the end
of the year,” Bass said in a telephone interview. “They’ve
been a source of constant selling pressure in the equity this

GM rose 1.2 percent to $38.60 at 3:13 p.m., after reaching
a record high of $39.62. The stock gained 32 percent this year
through yesterday, outpacing a 26 percent gain by the Standard &
Poor’s 500 Index.

Bankruptcy Benefits

After sales plunged to a 29-year low in 2009, when
governments financed GM and Chrysler Group LLC restructurings,
demand has recovered to the fastest pace since 2007. The rebound
serves as inspiration for Detroit, long known as the Motor City,
which a federal judge ruled yesterday is eligible for bankruptcy
from creditors owed $18 billion.

With lower labor costs, less debt and only its strongest
brands, the new GM has been profitable for 15 quarters. It
reported a 14 percent increase in November light-vehicle sales
in the U.S., the second-biggest gain among major automakers,
maintaining its market share for the year at an industry-leading
17.9 percent.

Attractive Valuation

Last week, Bloomberg News reported that GM may become a
tempting target for activist investors as the U.S. government
exits its stake. With a low valuation and analysts projecting
free cash flow will rise next year, Harry J. Wilson, a member of
the U.S. auto task force that helped rebuild the automaker in a
2009 bankruptcy, said activist investors may push for more
dividend payouts or stock buybacks.

GM already trades at a valuation that’s cheaper than 97
percent of its peers, including Ford Motor Co., according to
data compiled by Bloomberg.

Analysts project the company will generate $5.4 billion in
free cash flow in 2014, double last year’s figure. A push to
give shareholders some of its cash, built up during the
government-backed bankruptcy and restructuring, would clash with
some of Chief Executive Officer Dan Akerson’s goals to maintain
spending on new products and buy back preferred shares left
after the bankruptcy.

Confidence Growing

GM’s $44.6 billion enterprise value is equal to 3.3 times
analysts’ average estimate for this year’s earnings before
interest, taxes, depreciation and amortization, according to
data compiled by Bloomberg. That multiple trails all but one
automaker larger than $5 billion, a group which fetches a median
of about 9 times Ebitda, the data show.

GM should “at least trade in line” with its auto peers,
according to the Hayman presentation. Bass said that by his
reckoning, GM trades at three times Ebitda, while Dearborn,
Michigan-based Ford trades at 4.4 times Ebitda.

“A strong case can be made that GM should trade at a
premium to the group,” Hayman said. Bolstering that investment
argument are the company’s “unique position and strong
underlying fundamentals, a best-in-class leverage to global
growth markets, improving operational efficiency from ongoing
turnaround efforts and an improving product cadence.”

Dave Roman, a GM spokesman, declined to comment on Hayman
investing in the company.

Track Record

Bass, a hedge fund manager from Dallas who focuses on
corporate turnarounds, came to prominence after successfully
betting against subprime mortgages. While the world’s largest
financial institutions wrote off more than $80 billion in
subprime losses, Bass and others racked up billions in profit.

He has about $2 billion under management, owning securities
ranging from secured debt and shares in J.C. Penney Co. to
Argentina’s restructured bonds. He has been betting on a
Japanese fiscal collapse for several years and on gold as a
hedge against inflation spurred by central banks printing money.

The department-store chain investments hasn’t been a great
one as the shares fell 49 percent this year through yesterday.
Hayman cut its stake in half to 5.69 million shares, according
to a filing last month, making it J.C. Penney’s 10th-largest

Confidence in GM has been growing as the U.S. Treasury
sells down its stake, helping facilitate a return to the S&P
. The automaker is introducing 18 new or refreshed vehicles
this year in the U.S. and 14 next year as it moves to transform
its lineup into one of the freshest in the industry from among
the oldest.

The automaker’s shares have risen steadily since the
Treasury announced in December 2012 that GM was buying back $5.5
billion worth of shares and that it planned to exit the company.
GM topped its $33 initial public offering price for the first
time in two years in May after reaching a low closing price of
$18.80 in July 2012.

In September, GM was raised to investment grade for the
first time in eight years when Moody’s Investors Service
upgraded the automaker to Baa3 from Ba1, citing the new U.S.
models, strength in China and cash. GM has attracted investors
such as State Street Corp. and Warren Buffett’s Berkshire
Hathaway Inc.

To contact the reporters on this story:
Tim Higgins in Detroit at
Kelly Bit in New York at

To contact the editors responsible for this story:
Jamie Butters at
Christian Baumgaertel at