Bank Watch

Ally Financial says sale is hedge fund’s agenda in push for board seats

Ally Financial signs hang outside the New York Stock Exchange in 2014 to mark when the company started trading its shares in an initial public offering. This week, Ally disclosed a dispute with a hedge fund that Ally says wants to force a sale of the company.
Ally Financial signs hang outside the New York Stock Exchange in 2014 to mark when the company started trading its shares in an initial public offering. This week, Ally disclosed a dispute with a hedge fund that Ally says wants to force a sale of the company.

Ally Financial, the Detroit-based lender that employs hundreds in Charlotte, disclosed this week a dispute with a hedge fund that Ally says wants to force a sale of the company.

The hedge fund, Lion Point Capital, is pushing for two candidates to stand for election to Ally’s board of directors, after Ally rejected its request last month to form a strategic alternatives committee.

Ally noted that forming such a committee would be widely regarded as a decision to pursue a sale, a move Ally says is “contrary to the best interests of stockholders.” Lion Point’s nomination of director candidates followed various demands the hedge fund made in a Dec. 23 letter, including the creation of the committee, Ally said.

Ally said its board will evaluate the candidates, whose names have not been disclosed. It remains unclear whether the company will put them up for a shareholder vote at its annual shareholders meeting in Detroit this spring.

“Although we are troubled by Lion Point’s tactics, our fundamental disagreement is with Lion Point’s clear agenda to force a sale of Ally,” Ally Chairman Franklin Hobbs said in a statement.

Lion Point could not be reached for comment.

According to Ally, the hedge fund was formed in 2014, the same year Ally went public. Ally says Lion Point holds less than 1 percent of its common stock.

The hedge fund’s move comes as Ally, a large auto lender that also operates the online-only Ally Bank, is under pressure from investors to turn around its stock performance.

Ally shares have tumbled by more than 25 percent from their initial public offering price of $25 a share on April 10, 2014. The KBW Bank Index, which tracks share performance of 24 large U.S. lenders, is down by about 1.2 percent over the same period.

The episode marks the latest example of a publicly traded company facing demands from an activist investor.

Such activism has played a role in reshaping Charlotte’s corporate landscape. Last year Chesapeake, Va.-based Dollar Tree completed its purchase of Matthews-based Family Dollar after an activist investor pushed the company to sell itself.

Activist investors are becoming more active in the U.S., fueled in part by others whose efforts have been successful, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

“They’ve done well. They’ve created a lot of value, and there’s money to be made in creating value, so they believe.” Elson said.

But Lion Point might have its work cut out for it.

An investor possessing less than 1 percent of a company’s common shares doesn’t wield much influence, Elson said. Forcing the sale of a company would require support from a “very significant” percentage of investors, he said.

Ally has a large presence in Charlotte, where its name is on a South Church Street tower in large purple letters. The company says it employs roughly 800 in Charlotte, its second-largest employment hub behind Detroit.

Some of the company’s top executives are based in Charlotte, including CEO Jeffrey Brown, who was named to that position early last year. Also last year, the company promoted a Charlotte-based executive to head Ally Bank, which had been run by a person in New York.

Ally previously went by the name General Motors Acceptance Corp., which was spun off from GM in 2006. GMAC accepted $17.2 billion in a financial crisis bailout, which Ally exited in 2014 after the U.S. Treasury Department sold its remaining Ally common stock.

Former GMAC chief executive Al de Molina, previously a chief financial officer for Bank of America, expanded the company’s presence in Charlotte.

In its statement announcing the dispute with Lion Point, Ally touted recent accomplishments it says the company has made. Among other things, Ally said it has implemented improvements to its operational and business strategies and delivered improved and consistent profitability.

Unlike some of its big-bank peers, Ally doesn’t pay a dividend on its common shares. In November, the company said a key dividend roadblock had been removed when the Federal Reserve gave it permission to buy back remaining preferred shares whose terms restricted it from paying a dividend.

Ally has said paying a dividend is a priority, but it will first need the Fed’s approval. Since the financial crisis, the regulator must sign off on plans by the biggest U.S. banks to return more capital to shareholders.

Banks must submit their latest capital plans to the Fed by April 5.

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