Billionaire mogul Kirk Kerkorian and his in-house automotive expert, Jerry York, have shaken up General Motors by hinting that an alliance between General Motors Corp. and the French-Japanese carmaker Renault-Nissan could be within arm’s reach.
GM’s board of directors met Friday in a hastily arranged teleconference to discuss the proposal, which was first disclosed in a Securities Exchange Commission filing by Los Angeles-based Tracinda Corp., Kerkorian’s holding company.
For tactical and legal reasons, GM’s board was not in a position to dismiss the discussions of a possible GM-Renault-Nissan alliance out of hand, one GM source said.
Renault-Nissan released a tepid statement inParis, saying it would be willing to discuss the possibility of some kind of alliance with GM. The statement also noted the company had been approached by Tracinda’s representatives about the possible alliance.
“At this point, it is necessary that the GM board and top management fully support this project in order to start the study of this opportunity after agreement of Renault and Nissan boards,” the Renault-Nissan statement said.
Tracinda brokering
Kerkorian, who now owns 9.9 percent of GM’s shares, urged the company’s board of directors to explore the possibility of an alliance with Renault-Nissan, which is headed by Carlos Ghosn, widely regarded as one of the auto industry’s shrewdest executives.
“Tracinda believes that such a global alliance has the potential to materially strengthen the competitive positions of all three companies in the increasingly challenging worldwide automotive industry,” Tracinda noted in separate letter that was part of the filing.
Kerkorian is GM’s largest private shareholder and, in February, the automaker yielded to Kerkorian’s pressure and placed his associate York on its board. York is a former Chrysler executive who has served as Kerkorian’s top automotive adviser for more than a decade.
The talk of a GM-Renault-Nissan alliance is undoubtedly a direct result of York’s respect for Renault-Nissan chief executive Carlos Ghosn, noted one automotive insider, who has worked closely with York in the past.
One of a kind?
General Motors officials were careful to point out that GM has not received any kind of specific proposal from Renault-Nissan.
“General Motors Corp. has received no offer or proposal from Renault-Nissan with respect to its participating in the Renault-Nissan Alliance, as suggested in the 13-D Filing made today by the Tracinda Corporation. The Tracinda request will be taken under advisement by the GM Board of Directors. At this time, we have no further comment,” GM said in a prepared statement that was placed on the company’s Web site.
CSM Worldwide, a market forecaster based in Michigan, said the alliance of General Motors, Renault and Nissan proposed by Kerkorian could create “a one-of-a-kind global enterprise” that would hold dominant positions in at least three of the world’s major vehicle markets. GM-Renault-Nissan could potentially dominate vehicle sales and production in North America, Europe and China, according to figures compiled by the analysts.
CSM was careful to note that an alliance would face daunting challenges, such as the ongoing restructuring of Renault. The disparate corporate cultures may not be easy to integrate and opportunities for comprehensive savings and other synergies could be limited “without strong and centralized leadership and commitment” throughout all three organizations.
John Murphy, Merrill Lynch analyst, also said an alliance could result in significant value creation.
“It is too early to count on. However, we do believe that the fact that the alliance with GM is even being considered by Renault-Nissan is confirmation that there is significant value in GM,” Murphy said.
“Our feeling is that there is no rush on the part of Renault-Nissan to expand the alliance,” Murphy added.
Creating value
For Tracinda, the SEC filing suggests that Kerkorian and York are looking for a way to replicate the success in helping forge the merger between the Chrysler Corp. and German car maker Daimler-Benz in 1998. At the time, Tracinda was the largest Chrysler shareholder and Kerkorian walked away with a handsome profit after the deal was completed.
The SEC filing also is a public rebuke of GM Chairman and Chief Executive Officer Richard Wagoner because it suggests that Kerkorian believes Ghosn could better manage GM’s ongoing turnaround.
Earlier this week, Wagoner announced that more than 35,000 GM employees and 12,600 Delphi employees, once employed by GM, had agreed to accept retirement and buyout packages. The buyouts, while expensive, are expected to help GM reduce its fixed costs substantially, Wagoner said.
Kerkorian bought a 9.9-percent stake in GM in spring of 2005 but the profits have been negligible because of the plunge in GM’s share prices after the company ran into financial troubles last year and wound up losing $10.6 billion for the year.
In January, before he became a member of the GM board member, York publicly chastised GM’s management for not doing more to create a sense of urgency inside the company about the need for reform.
Meanwhile, Dieter Zetsche, the chief executive officer of rival DaimlerChrysler, declined comment during a press conference at the Chrysler Group headquarters in Auburn Hills on the discussion of an alliance between GM and Renault-Nissan.
“It’s just speculation. Sometimes the news is the purpose,” said Zetsche, who is a veteran of the post-merger court fights between Tracinda and DaimlerChrysler. Following the 1998 merger that created DaimlerChrysler, Kerkorian claimed Daimler-Benz withheld critical information about its plans from investors. After a lengthy trial that ended in the winter 2005 in U.S. District Court in Wilmington , Del. , DaimlerChrysler prevailed and Kerkorian’s claim for $1 billion in damages was dismissed.
However, Zetsche also noted consolidation is one of the things that happens in mature industries.
I’ve read Taken for a Ride 3 times now, and Kerkorian just seems like a real wackjob.
What’s in it for him? GM is going to take years to turn around, and good old Kerk (and he really is older than dirt) is looking for anybody that will take his share off his hands.
And what’s in it for Renault? They want to sell cars in the profitable US market. GM’s network is probably very lucrative for this plan.
Hm.