Tuesday, July 11, 2006

GM takes 1st step

Saturday, July 08, 2006
GM takes 1st step
Good start, but not enough: Kerkorian
Bill Vlasic and Christine Tierney / The Detroit News

DETROIT -- The board of General Motors Corp. on Friday empowered Chairman Rick Wagoner to lead the automaker's upcoming talks on a potentially historic global alliance with Renault SA and Nissan Motor Co.

Activist shareholder Kirk Kerkorian welcomed the decision as a "good first step," but wasn't entirely satisfied. He pressed the GM board Friday to form its own committee and hire outside advisers to help evaluate an alliance with Renault-Nissan.

By naming Wagoner as its point man in the talks and reiterating support for his North American turnaround plan, the GM board temporarily defused speculation that the embattled chairman is in danger of being replaced by Renault and Nissan's CEO Carlos Ghosn.

The next major step comes next Friday when Wagoner and Ghosn are scheduled to meet face to face in Detroit. But given the complexity of the deal, discussions and analysis could play out over weeks or months.

Questions have abounded about how Wagoner would react to the unsolicited invitation to join Renault-Nissan that was hatched in secret by Kerkorian, Ghosn and Jerry York, a GM director and key adviser to Kerkorian.

Rather than attack the proposal, Wagoner recommended to the GM board that he take the lead in studying the deal "in order to assist the board in its decision-making," GM said in a statement after the hour-and-20-minute meeting Friday.

"Management will keep the board well-informed and the directors, of course, will closely monitor the process to assure that its outcome serves the best interest of all GM shareholders," said George Fisher, who serves as the board's lead outside director.

The reference to "all GM shareholders" was clearly directed at Kerkorian, who has used his 9.9 percent stake in GM to prod the automaker to accelerate its turnaround efforts and consider a megadeal with Renault-Nissan.

The GM board said Friday the move to "engage in exploratory discussions" with Renault-Nissan was "taken in response" to a direct request made by Kerkorian through his Tracinda Corp. investment arm.

But the board stopped short of giving in to Kerkorian's June 30 demand that the directors immediately form a committee to study a linkup with Renault-Nissan.

Tracinda, in a statement, said it was "pleased" with the GM board's decision to open talks with Renault-Nissan but urged the board to review the deal independently.

"We believe that the upcoming meeting between Mr. Wagoner and Mr. Ghosn is a good first step," Tracinda said. "But a full and objective evaluation of this unique opportunity will require establishment of a board committee that receives independent financial and legal advice."

Nissan and Renault welcomed the GM board's decision. "We're pleased they're open to discussions, and the process starts now," said Nissan spokesman Simon Sproule.

Wagoner, for his part, characterized Kerkorian's Renault-Nissan initiative as among the "interesting proposals" that GM receives periodically about potential mergers, acquisitions or alliances.

He noted that GM has considerable experience in international alliances, without mentioning that some previous deals have gone badly. Last year, GM paid $2 billion to get out of a disastrous partnership with Italy's Fiat Auto. It also recently sold stakes in Japan's Suzuki and Fuji Heavy Industries.

"We will enter into discussions with the managements of Renault and Nissan with an open mind," Wagoner said in the statement.

But he cautioned that any deal will take time and an extraordinary amount of due diligence. "Given the complexity of any potential relationship, it has to be carefully considered on its merits before coming to any conclusion."

The delicate nature of the upcoming talks was underscored by comments made Friday by Ron Gettelfinger, president of the United Auto Workers. The union recently saw 47,000 of its members take buyouts or early retirements at GM and bankrupt auto-parts maker Delphi Corp.

"We're seeing a further erosion of good jobs in this country should this (deal) come about," Gettelfinger said in an interview with WJR-AM radio. "The entire complexion of the auto industry in the future will be determined by this."

Gettelfinger expressed his support for Wagoner and said he didn't think GM would ultimately join an alliance with Renault-Nissan.

"I don't think it will come about in the final analysis," he said. "I think Rick Wagoner is doing a great job and has a great team."

Earlier this week, the boards of Renault and Nissan endorsed Ghosn's proposal to begin discussions with GM to explore a three-way alliance but said they would not press further unless GM was willing. "The conditions are now in place to start talks," Renault said in a statement Friday.

"We look forward to starting the discussion process soon," Nissan said in a similarly worded statement.

Renault holds a controlling stake in Nissan, which it purchased in 1999 when the Japanese automaker was in deep financial difficulty. The charismatic Ghosn led a dramatic turnaround at Nissan, and has since taken on the additional responsibility of CEO at Renault.

His track record drew the interest of Kerkorian and York, who held secret meetings with Ghosn in May and June to discuss a possible alliance with GM.

After York made a case to Wagoner about the potential deal on June 22, the GM chairman called Ghosn and set up a face-to-face meeting for Friday.

Details of the meeting were first reported in The Detroit News on Tuesday. After the board meeting Friday, GM for the first time confirmed the Wagoner-Ghosn telephone conversation and the upcoming meeting.

"Wagoner noted that when the idea of joining an alliance with Renault and Nissan was first suggested to him, he promptly contacted Carlos Ghosn and the two leaders agreed to meet at a mutually convenient time to have an initial exploratory discussion," GM said.

People close to GM say the automaker has already formed an internal task force to study the vast implications of a partnership with Renault-Nissan. Some members of GM management have privately expressed deep reservations about the deal.

Similar teams are being assembled at Renault and Nissan, according to people familiar with the companies.

Wall Street reacted cautiously Friday to the news that Wagoner will open talks with Renault-Nissan. GM shares closed at $29.48, up 28 cents.

"We believe that due diligence on a potential alliance between General Motors and Renault is at a very preliminary stage, and it is not yet possible to assign a probability of a deal," said Rod Lache, an auto analyst at Deutsche Bank.

The GM board's move to back Wagoner was significant given the avalanche of criticism directed at him since the automaker lost $10.6 billion last year.

Moreover, the board took the opportunity to voice its confidence in Wagoner's plan to turn around GM by shedding 30,000 U.S. factory jobs, selling control of its auto-finance business and helping Delphi emerge from bankruptcy.

"The board continues to fully support the company's North American turnaround strategy," said Fisher. "And we encourage management to also continue its efforts to conclude a satisfactory resolution of the issues associated with the Delphi bankruptcy and to complete the pending GMAC transaction."

One analyst said the board's support of Wagoner -- after giving him a public vote of confidence in April -- marks a turning point for the 53-year-old chairman.

"Wagoner has never been stronger," said David Healy of Burnham Securities. "In my judgment, he's bringing about the first successful restructuring at GM since the company was formed in 1918."

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.

© Copyright 2006 The Detroit News. All rights reserved.

What happened:
GM's board said the company will begin "exploratory talks" with Renault and Nissan on a possible alliance.
The board said CEO Rick Wagoner would lead the study and reiterated its support for his turnaround plan.
Kirk Kerkorian's investment firm aid it was "pleased" at the board's action, but wants the board to study the alliance with the help of independent advisers.


Post a Comment

<< Home