NLPC Associate Fellow Mark Modica was a guest on Closing Bell today on CNBC. He was joined by Kevin O'Leary of Shark Tank.
Here is a transcript:
Sara Eisen: At first it seemed like it was just another activist investors at work but our next guest says something else is in play here. We're talking about Harry Wilson, the restructuring expert who served on President Obama's auto industry task force during the financial crisis and was instrumental in bringing GM out of bankruptcy. Now Wilson is a GM activist investor and represents hedge funds holding a total of 34 million shares asking General Motors' CEO Mary Barra for a seat on the board and is pressing for a stock buyback, Simon.
Simon Hobbs: Our next guest is a former GM bondholder who says the company isn't so financially healthy, that it shouldn't burn through its reserves with buybacks and believes Wilson's move is designed to boost the United Auto Workers union more, in fact he says, than the GM shareholders. Mark Modica joins us. He's an associate fellow at the National Legal and Policy Center. Also with us Kevin O'Leary, Chairman of O'Leary Funds and more importantly than all, a "Shark Tank" investor. Mark, make your case, if you would.
Mark Modica: Hello, Simon. I think this is just a farce and the first evidence is look at GM's performance since the IPO which is a little over four years ago. Underperformed the S&P 500 by close to 70%. So the idea that this underperformance is coming because they have too much cash on their balance sheet is nonsense. So now we have Harry Wilson re-entering the scene. Mr. Wilson, best known as one of President Obama's men on the auto task force, helped crush the individual bondholders to the benefit of the UAW. Since then the Teamsters insisted he join YRC Worldwide's board, to help with their negotiations in restructuring. Now he's coming back to GM to spend more of the taxpayer supplied money. Coincidentally, UAW still owns about $5 billion worth of GM common shares. I'm betting those are the shares that are going to be purchased at a premium or at the least they can start selling those as this is run up. Hedge funds benefit. Mr. Wilson benefits. UAW benefits. It looks like a big pump and dump.
Sara Eisen: That's certainly one view. Kevin O'Leary, what's your take and are you shareholder?
Kevin O'Leary: No, I'm not. I would never buy GM shares because I actually think something very unholy occurred in the restructuring of GM. Instead of letting the natural Darwinian forces of the market actually take these assets, completely cleanse them through bankruptcy, the way it should have occurred, during the financial crisis, we took my money as a taxpayer, your money, and allowed it to go through a very evil and unholy restructuring.
Simon Hobbs: OK, but Kevin.
Kevin O'Leary: It didn't cleanse. I look at it this way we should have cleansed…the legacy costs
Simon Hobbs: Mark, hang on. Kevin to, the point that's being made here, do you think it would be to the benefit of shareholders now if that cash was returned? One of the reasons stocks underperformed was they don't return enough cash to the shareholders and after all, it does belong to them.
Kevin O'Leary: The business model is broken, Simon because we never cleansed the real legacy costs of the union. We should have bankrupted that relations, put it through a cleansing so that it started as a new company, competitively on a global basis, and went out there and competed. The reason you're seeing it underperform continually and even now, which is the real criticism, is because it bears legacy costs that were not shed through the bankruptcy. It was a huge mistake and you paid for it as an American taxpayer. I paid for it as a taxpayer. I'm outraged.
Sara Eisen: We've got to leave it there. It is certainly a heated discussion – an ongoing one. We will see what happens with GM
Mark Modica: Well-said.
Sara Eisen: Mark, thank you very much. Kevin O'Leary, thanks to you too.
Mark Modica: Thank you.