Along with finalizing a relationship with McLaren Automotive North America, Ally Financial this week responded to demands from a hedge fund that amounted to what the finance company chairman called a “clear agenda to force a sale of Ally.”

Ally indicated the series of events leading up to the current situation included various document submissions, phone calls and conversations with officials from Lion Point Capital, a hedge fund formed in 2014. Lion Point has advised Ally that it holds less than 1 percent of Ally’s common stock.

On the evening of Dec. 23, officials recapped that Lion Point sent Ally a letter outlining various demands, including that Ally’s board create a strategic alternatives committee. The company said the demand was repeated in a precatory proposal contained in a notice delivered earlier this week. 

Executives noted Ally's Compensation, Nominating and Governance Committee and its full board previously concluded that Ally stockholder value would not be enhanced by the creation of such a committee, that Ally's business and financial fundamentals and prospects are strong, and that it would be a “highly disadvantageous time” in the business, market and regulatory cycle to pursue a sale transaction.

Ally emphasized the formation of such a committee would be widely regarded as a decision to pursue a sale of the company. 

“Lion Point's actions are particularly disappointing given Ally's engagement with the hedge fund over the last few months,” officials said while adding that they received a notice of nomination from Lion Point proposing two candidates to stand for election to Ally's Board of Directors at the company's 2016 annual meeting, which is currently scheduled for May 3.

The company mentioned that Lion Point advised Ally of its Hart-Scott-Rodino filing on Nov. 12. Lion Point commented that it was “precautionary” and that it did not intend to engage in an “activist” role.

A few days later, members of Ally's senior management and the board had a phone call with Lion Point, at its request. Lion Point's next communication with the company was in the demand letter, sent just before Christmas, in which it insisted on a positive response to its proposals in less than two weeks, failing to mention it planned to nominate directors, according to Ally.

Ally shared that the Compensation, Nominating and Governance Committee of the board and the full board each met immediately after Christmas to discuss Lion Point's demands. Ally representatives subsequently held further discussions with the Lion Point representatives in which the adverse consequences of publicly establishing a Strategic Alternatives Committee were explained.

“Our board is committed to open dialogue with our stockholders,” Ally chairman Fritz Hobbs said. “We believe, however, that our primary duty as directors is to assess the best path for Ally and all its stockholders.

“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,” Hobbs continued. “Such a course of action would be contrary to the best interests of stockholders and our obligations to all stockholders do not permit us to adopt such a course to avoid a proxy contest.”

Ally went on to stress the company has a highly qualified board of experienced professionals with extensive expertise in banking, consumer finance and the financial sector more generally.

“The board is committed to good corporate governance, with all directors other than the CEO being independent,” officials said.

“Under the leadership of the Board of Directors and the current management team, Ally has implemented substantial improvements to its operational and business strategies, delivered improved and consistent profitability, strengthened the company's financial profile and further deepened and strengthened customer relationships,” they continued.

To back up those claims, Ally highlighted some of its recent achievements, including:

• Generated auto originations in excess of $40 billion in 2015, surpassing original target

• Steadily grew bank deposits in excess of $7 billion from more than 1 million customers in 2015

• Achieved a core return on tangible common equity (ROTCE) above its targeted 9 percent in two of the last three quarters

• Increased core income 10.8 percent to $1.4 billion year-to-date through the third quarter, and increased net income 5.4 percent to approximately $1 billion during the same period

• Successfully redeemed $2.6 billion of Series G preferred securities

• Achieved an adjusted efficiency ratio in the mid-40 percent range

“The Board of Directors welcomes the views of its stockholders and will consider suggestions from all stockholders,” officials said. “It will not, however, undertake any actions that it believes would jeopardize the company's ability to deliver long-term value for all stockholders.”

Despite all of the activity as well as the Lion Point nominations, the company emphasized the developments “have no impact” on Ally's operations, “which continue in the normal course.”

Officials went on to say, “Ally remains squarely focused on serving the needs of its customers and delivering the competitive products and services they have come to expect from the company. 

“Ally’s Board of Directors will carefully consider and evaluate Lion Point’s nominations and will communicate its views to stockholders in due course,” they added.

Lion Point responds to Ally’s stance

In a statement sent to SubPrime Auto Finance News on Wednesday, Lion Point sought to clarify its objectives for the hedge fund’s moves associated with Ally.

“Lion Point’s intention has been to work constructively and privately with Ally’s Board of Directors to address what Lion Point believes to be the concerns of many shareholders on the significant gap between the company’s intrinsic value and its stock price,” firm officials said. “Based on our discussions, we understood the board to be frustrated in this regard as well. 

“To this end, we noted in our most recent conversation that the board could unilaterally extend the director nomination deadline to allow more time for what we thought were collaborative discussions to continue,” they continued.

“However, Ally not only refused to extend this deadline, but also chose to immediately go public with our private nomination via a press release,” officials went on to say. “Lion Point is particularly disappointed by this move given that it directly contradicted Ally’s consistent statements that it was in the best interest of all stakeholders to keep any dialogue regarding strategic alternatives private.

Lion Point maintained that its goal is to ensure that the voices of Ally's shareholders are heard and that policies are in place to address the significant undervaluation of the company should such undervaluation persist. 

“The non-binding shareholder proposal we submitted to Ally regarding the assessment of strategic opportunities, highlighted so prevalently by the company, is merely one facet of this conversation and is intended simply to allow shareholders to directly express their views at the annual meeting on the benefit of a committee to evaluate all strategic opportunities (of which a sale is only one option),” Lion Point officials said.

“Also, in direct response to our conversation with the board last week, we further tailored the precatory proposal to stipulate that (assuming shareholder approval) such a review would be initiated in the future only if the company’s stock was then below adjusted tangible book value and had exhibited a persistent discount for an entire year,” they continued.

“We were rather surprised that Ally did not make this clear in its press release,” officials went on to say.

Lion Point closed its reaction by offering what firm officials see as perhaps happening next.

“Lion Point hopes to continue the dialogue with Ally and its board, and work with the board constructively in the manner most beneficial to the company and all of its shareholders,” the firm said.

“We believe this is an opportunity for Ally and the board to be a leader in corporate governance and shareholder value maximization, and look forward to the success of the company,” officials added.

McLaren North America and Ally form relationship

In other company news, McLaren Automotive North America and Ally Financial announced a new preferred financing relationship, which includes the availability of retail financing and competitive leasing options for McLaren's two best-selling models, the McLaren 570S and 650S.

Officials noted McLaren and Ally worked together for several months to develop this bespoke program for the unique McLaren client base. Retail financing and closed-end leases are available to qualified customers immediately throughout the entire U.S. McLaren dealer network.

“We are thrilled to announce the addition of leasing to our purchasing options, and fulfill what has been a regular request from our customers and dealers since we first set up U.S. operations in 2011. Ally Financial has been a wonderful partner to develop this bespoke program with, and we are excited to launch it today,” McLaren North America president Anthony Joseph said.

“The availability of leasing comes at a critical time for McLaren as we begin to deliver the 570S Coupe, which enters a segment where lease availability is critical to car sales,” Joseph continued.

These closed-end lease programs from McLaren were developed in response to both customer and retailer demand, and to better compete in the performance car market. Leases are available for the 2016 McLaren 570S Coupe for as low as $2,200 per month.

Officials believe the competitive leases can provide McLaren customers with certainty around the cost of driving by transferring the risk of depreciation away from the customer. They also offer convenience, where customers who have met all of their lease obligations can simply turn their vehicle back in at the end of the leasing term.

“We are pleased to be launching this program with McLaren and supporting one of the world's premiere luxury brands," said Tim Russi, president of auto finance at Ally Financial.

“We look forward to establishing and building strong relationships with McLaren's network of U.S. dealerships and providing long term value,” Russi added.