Renault, GM weigh risk-laden megadeal
Monday, July 03, 2006
Renault, GM weigh risk-laden megadeal
Ghosn's role, Kerkorian's motives raise questions
Christine Tierney / The Detroit News
The top brass at General Motors Corp., Renault SA and Nissan Motor Co. will be scrambling this week to analyze the implications of a stunning proposal brokered by GM's largest individual shareholder, Kirk Kerkorian, to bring GM into the Renault-Nissan alliance.
Renault CEO Carlos Ghosn is expected to brief the French carmaker's board in Paris today on his discussions to date with Kerkorian and his longtime adviser, Jerry York, a member of GM's board.
"At this stage, he will describe Kerkorian's proposal and ask the board if they agree to a continuation of the discussions," a Renault official familiar with the matter told The Detroit News.
The official said any further initiatives would hinge on whether GM's board and top management were willing to explore a relationship with Renault and its partner Nissan Motor Co.
GM's board may convene as early as this week, but no meeting has been scheduled, according to sources at the U.S. automaker.
"As we've said, the board will take it under advisement and that's what's going on," GM spokeswoman Toni Simonetti said Sunday.
She declined to comment further.
Kerkorian's wholly owned Tracinda Corp., which owns 9.9 percent of GM, dropped a bombshell Friday when it disclosed letters it had sent to GM and Renault-Nissan proposing a three-way deal.
In the letter to GM Chairman and CEO Rick Wagoner, Kerkorian said Renault and Nissan were receptive to the idea of expanding the alliance and acquiring "a significant minority interest" in GM.
People familiar with the situation said Renault and Nissan could pay about $3 billion for a 20 percent stake in GM.
While Renault and Nissan both said in statements that their interest was amicable, Kerkorian has been a thorn in the side of GM's management ever since he acquired a holding last year.
Some GM executives were aware that Kerkorian and Ghosn had been in contact, but Tracinda's disclosures Friday in a U.S. Securities and Exchange Commission filing came as an unsettling surprise.
"It's clearly a tactic that's usually done in a hostile scenario," said one GM official. "To take it public is not collegial. It's destabilizing and creates drama and pressure."
During a hastily convened phone conference at noon on Friday, GM's board agreed the matter should be studied.
GM's chief financial officer, Frederick Henderson, would be in charge of analyzing a proposal. But GM sources say the plan has been framed in such vague terms that there's little to study at this stage. Executives also are curious about Ghosn's role. Renault-Nissan is clear that Kerkorian and York approached Ghosn. "They came to us," a company source said.
But Ghosn's participation raises questions about Wagoner's long-term role in a three-way alliance.
Wagoner sought and received a vote of confidence from the board in April amid reports that his job was not secure. Since then, he has recovered some of his standing after striking landmark cost-cutting accords with the United Auto Workers and deals to give GM more breathing room, such as the sale of its GMAC finance arm.
The pace of change is apparently too slow, however, for Kerkorian, the 89-year-old casino mogul who began building his stake in GM a year ago and has lost more than $1 billion on his investment.
Kerkorian first made contact with Ghosn in May through York, a senior Kerkorian adviser who was elected in January to a seat on GM's board. York, the former CFO of Chrysler and IBM, has made no secret of his admiration of Ghosn.
Kerkorian and Ghosn had dinner two weeks ago in Nashville where they discussed the potential alliance, according to a person familiar with the matter. But, it was unclear whether Ghosn was aware of the timing of Tracinda's filing last Friday.
Kerkorian appears to want to tap Ghosn's turnaround expertise and seek ways to lower GM's costs by spreading the hefty vehicle development expenses across three companies.
With GM, the alliance would control 25 percent of the global auto market, dwarfing companies such as Toyota Motor Corp. and Ford Motor Co.
It would have a strong presence in all major regions: North America, Europe, Japan and key emerging markets such as China.
But GM's experience with cross-border deals has been disappointing. Last year, as its troubles in North America were mounting, it was obliged to pay $2 billion to Italy's Fiat SpA to get out of a potentially disastrous acquisition deal.
By contrast, the Renault-Nissan alliance formed in 1999 has paid off for both companies.
Renault and Nissan executives attribute the partnership's success to the terms set by Renault Chairman Louis Schweitzer, who was then CEO and is now non-executive chairman of Renault's board.
The two automakers have retained separate names, brands, managements and stock listings to protect their cultures and identities. But they cooperate closely on an industrial basis, sharing platforms and facilities to speed up development of new models while controlling their costs.
A spokesman for Nissan said the Japanese automaker's board would also meet this month to discuss an expansion of the alliance. Ghosn is currently CEO of both Renault and Nissan, which is 44 percent-owned by Renault.
Any expansion of the alliance would need the approvals of both boards -- as well as the blessing of the French state, which owns 15 percent of Renault.
French Finance Minister Thierry Breton said on Sunday that he had spoken with Ghosn and that Renault's board would meet today.
"I said that, as overseer of financial markets, which is my role as finance minister, that I would look to ensure that governance was clearly respected and a position not be taken before the board had come to a decision," Breton said in remarks on radio Europe1 reported by news agencies.
The French newspaper Le Monde questioned whether GM, the world's largest automaker, would be interested in being an equal partner in the alliance.
"The American automaker has always had the role of predator, either by taking outright control as with Sweden's Saab or Daewoo of South Korea, or by taking stakes as with Italy's Fiat or Isuzu, Suzuki or Subaru of Japan," it said.
"Would GM be able to adapt itself to the Renault-Nissan philosophy that rests on a subtle equilibrium and eschews power plays?"
On Friday, investors drove up GM shares 8.6 percent to their highest level in eight months on expectations that Kerkorian would set in motion forces to accelerate the pace of change at GM. The automaker lost $10.6 billion last year, due mainly to difficulties in its home market. Over the past five years, Nissan's shares have risen 67 percent, and Renault's stock has risen 63 percent, while GM's stock is down by 53 percent.
Ghosn, a French national born in Brazil, helped restructure Renault in the late 1990s. In 1999, after the French automaker paid $5.4 billion for a controlling stake in Nissan, Schweitzer dispatched Ghosn to Tokyo to fix the ailing Japanese automaker.
Ghosn slashed purchasing costs, shut factories, eliminated 21,000 jobs and invested the savings into an ambitious model offensive.
Just over a year ago, Ghosn also became the CEO of Renault. He has drafted a four-year plan to improve its performance. He aims to boost Renault's operating profit margin to 6 percent in 2009 -- a high level for a mass-market automaker.
Ghosn has often said he relishes taking on enormous challenges.
But with Renault and Nissan both struggling to recover their sales momentum in major markets and preparing for key model launches, some industry experts question Ghosn's interest in taking on GM's enormous problems.
You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.
© Copyright 2006 The Detroit News. All rights reserved.
****Automotive mergers and alliances****
-1989-
U.S.'s Ford Motor Co. buys U.K.'s Jaguar Plc.
-1990-
U.S.'s General Motors Corp. buys 50% of Sweden's Saab Automobile AB for $60 million.
-1991-
Germany's Volkswagen AG buys majority of Czechoslovakia's Skoda Auto AS.
-1993-
France's Renault SA and Sweden's Volvo AB abandon proposed merger because of objections from Volvo employees and management.
-1994-
Germany's Bayerische Motoren Werke AG buys U.K.'s Rover Group for $1.2 billion.
-1996-
Ford boosts stake in Japan's Mazda Motor Corp. to 33.4 percent from 24.5 percent for $482 million, gaining management control.
-1998-
Germany's Daimler-Benz AG buys U.S.'s Chrysler Corp. for $35 billion.
Volkswagen buys U.K.'s Bentley and Rolls-Royce Motor Cars for $854 million. It sells Rolls-Royce to BMW after BMW bought the name for $71 million from airplane-engine maker Rolls-Royce Group Plc.
Volkswagen buys Italy's Automobili Lamborghini SpA for an estimated $110 million.
GM spends $456 million to increase stake in Japanese truckmaker Isuzu Motors Ltd. to 49 percent from 37.5 percent.
Ford sells 9.4 percent stake in South Korea's Kia Motors Corp. for $11 million after Kia declares bankruptcy.
GM buys 6.7 percent stake in Japan's Suzuki Motor Corp. for $315.4 million.
-1999-
Ford buys Volvo Cars for $6.5 billion.
Renault buys 37 percent of Japan's Nissan Motor Co. for $5.4 billion.
GM buys 20 percent stake in Japan's Fuji Heavy Industries Ltd., the maker of Subaru cars, for $1.4 billion.
South Korea's Hyundai Group pays $960 million for controlling stake in Kia. Hyundai Motor Co. is later spun off from group. 2000
GM buys 20 percent of Italy's Fiat SpA for $2.4 billion.
Germany's DaimlerChrysler AG buys 34 percent of Japan's Mitsubishi Motors Corp. for $1.9 billion. It buys an additional 3.3 percent stake in Mitsubishi from truckmaker Volvo AB in 2001 for $297 million.
DaimlerChrysler buys 10.5 percent of Hyundai Motor for $428 million.
Volkswagen buys last 30 percent of Skoda for $305 million.
BMW sells Rover to Phoenix Venture Holdings Ltd. for 10 pounds.
-2001-
GM buys the 50 percent of Saab it doesn't already own for about $735 million. GM buys additional 10 percent stake in Suzuki for $653 million, raising total stake to 20 percent.
Japan's Toyota Motor Corp. boosts stake in Japanese truckmaker Hino Motors Ltd. to 50.1 percent from 36.5 percent for $542 million.
-2002-
Renault raises its stake in Nissan to 44 percent for $1.6 billion. Nissan buys 15 percent of Renault for $1.6 billion.
GM buys South Korea's Daewoo Motor Co. assets for $251 million. GM also cuts stake in Isuzu to 12 percent from 49 percent in a $512 million bailout deal for Isuzu that gives GM ownership of two joint-venture truck-engine operations.
-2004-
DaimlerChrysler sells 10.5 percent stake in Hyundai Motor for $912 million.
-2005-
GM pays Fiat $2 billion to end its 5-year-old alliance. GM sells stake in Fuji Heavy for $737 million. Deal includes Toyota paying GM $315 million for 8.7 percent of Fuji Heavy.
DaimlerChrysler sells its 12.4 percent stake in Mitsubishi Motors for 970 million euros.
Germany's Porsche AG buys 18.5 percent of Volkswagen. It now holds 21.2 percent and plans to increase that to 25.1 percent.
-2006-
GM sells 92.4 million Suzuki Motor shares back to Suzuki for $1.96 billion, cutting its stake in the Japanese company to 3 percent. GM announces plan to sell remaining 7.9 percent stake in Isuzu for $300 million.
Kirk Kerkorian's Tracinda Corp. asks GM to explore a three-way partnership with Nissan and Renault.
Renault, GM weigh risk-laden megadeal
Ghosn's role, Kerkorian's motives raise questions
Christine Tierney / The Detroit News
The top brass at General Motors Corp., Renault SA and Nissan Motor Co. will be scrambling this week to analyze the implications of a stunning proposal brokered by GM's largest individual shareholder, Kirk Kerkorian, to bring GM into the Renault-Nissan alliance.
Renault CEO Carlos Ghosn is expected to brief the French carmaker's board in Paris today on his discussions to date with Kerkorian and his longtime adviser, Jerry York, a member of GM's board.
"At this stage, he will describe Kerkorian's proposal and ask the board if they agree to a continuation of the discussions," a Renault official familiar with the matter told The Detroit News.
The official said any further initiatives would hinge on whether GM's board and top management were willing to explore a relationship with Renault and its partner Nissan Motor Co.
GM's board may convene as early as this week, but no meeting has been scheduled, according to sources at the U.S. automaker.
"As we've said, the board will take it under advisement and that's what's going on," GM spokeswoman Toni Simonetti said Sunday.
She declined to comment further.
Kerkorian's wholly owned Tracinda Corp., which owns 9.9 percent of GM, dropped a bombshell Friday when it disclosed letters it had sent to GM and Renault-Nissan proposing a three-way deal.
In the letter to GM Chairman and CEO Rick Wagoner, Kerkorian said Renault and Nissan were receptive to the idea of expanding the alliance and acquiring "a significant minority interest" in GM.
People familiar with the situation said Renault and Nissan could pay about $3 billion for a 20 percent stake in GM.
While Renault and Nissan both said in statements that their interest was amicable, Kerkorian has been a thorn in the side of GM's management ever since he acquired a holding last year.
Some GM executives were aware that Kerkorian and Ghosn had been in contact, but Tracinda's disclosures Friday in a U.S. Securities and Exchange Commission filing came as an unsettling surprise.
"It's clearly a tactic that's usually done in a hostile scenario," said one GM official. "To take it public is not collegial. It's destabilizing and creates drama and pressure."
During a hastily convened phone conference at noon on Friday, GM's board agreed the matter should be studied.
GM's chief financial officer, Frederick Henderson, would be in charge of analyzing a proposal. But GM sources say the plan has been framed in such vague terms that there's little to study at this stage. Executives also are curious about Ghosn's role. Renault-Nissan is clear that Kerkorian and York approached Ghosn. "They came to us," a company source said.
But Ghosn's participation raises questions about Wagoner's long-term role in a three-way alliance.
Wagoner sought and received a vote of confidence from the board in April amid reports that his job was not secure. Since then, he has recovered some of his standing after striking landmark cost-cutting accords with the United Auto Workers and deals to give GM more breathing room, such as the sale of its GMAC finance arm.
The pace of change is apparently too slow, however, for Kerkorian, the 89-year-old casino mogul who began building his stake in GM a year ago and has lost more than $1 billion on his investment.
Kerkorian first made contact with Ghosn in May through York, a senior Kerkorian adviser who was elected in January to a seat on GM's board. York, the former CFO of Chrysler and IBM, has made no secret of his admiration of Ghosn.
Kerkorian and Ghosn had dinner two weeks ago in Nashville where they discussed the potential alliance, according to a person familiar with the matter. But, it was unclear whether Ghosn was aware of the timing of Tracinda's filing last Friday.
Kerkorian appears to want to tap Ghosn's turnaround expertise and seek ways to lower GM's costs by spreading the hefty vehicle development expenses across three companies.
With GM, the alliance would control 25 percent of the global auto market, dwarfing companies such as Toyota Motor Corp. and Ford Motor Co.
It would have a strong presence in all major regions: North America, Europe, Japan and key emerging markets such as China.
But GM's experience with cross-border deals has been disappointing. Last year, as its troubles in North America were mounting, it was obliged to pay $2 billion to Italy's Fiat SpA to get out of a potentially disastrous acquisition deal.
By contrast, the Renault-Nissan alliance formed in 1999 has paid off for both companies.
Renault and Nissan executives attribute the partnership's success to the terms set by Renault Chairman Louis Schweitzer, who was then CEO and is now non-executive chairman of Renault's board.
The two automakers have retained separate names, brands, managements and stock listings to protect their cultures and identities. But they cooperate closely on an industrial basis, sharing platforms and facilities to speed up development of new models while controlling their costs.
A spokesman for Nissan said the Japanese automaker's board would also meet this month to discuss an expansion of the alliance. Ghosn is currently CEO of both Renault and Nissan, which is 44 percent-owned by Renault.
Any expansion of the alliance would need the approvals of both boards -- as well as the blessing of the French state, which owns 15 percent of Renault.
French Finance Minister Thierry Breton said on Sunday that he had spoken with Ghosn and that Renault's board would meet today.
"I said that, as overseer of financial markets, which is my role as finance minister, that I would look to ensure that governance was clearly respected and a position not be taken before the board had come to a decision," Breton said in remarks on radio Europe1 reported by news agencies.
The French newspaper Le Monde questioned whether GM, the world's largest automaker, would be interested in being an equal partner in the alliance.
"The American automaker has always had the role of predator, either by taking outright control as with Sweden's Saab or Daewoo of South Korea, or by taking stakes as with Italy's Fiat or Isuzu, Suzuki or Subaru of Japan," it said.
"Would GM be able to adapt itself to the Renault-Nissan philosophy that rests on a subtle equilibrium and eschews power plays?"
On Friday, investors drove up GM shares 8.6 percent to their highest level in eight months on expectations that Kerkorian would set in motion forces to accelerate the pace of change at GM. The automaker lost $10.6 billion last year, due mainly to difficulties in its home market. Over the past five years, Nissan's shares have risen 67 percent, and Renault's stock has risen 63 percent, while GM's stock is down by 53 percent.
Ghosn, a French national born in Brazil, helped restructure Renault in the late 1990s. In 1999, after the French automaker paid $5.4 billion for a controlling stake in Nissan, Schweitzer dispatched Ghosn to Tokyo to fix the ailing Japanese automaker.
Ghosn slashed purchasing costs, shut factories, eliminated 21,000 jobs and invested the savings into an ambitious model offensive.
Just over a year ago, Ghosn also became the CEO of Renault. He has drafted a four-year plan to improve its performance. He aims to boost Renault's operating profit margin to 6 percent in 2009 -- a high level for a mass-market automaker.
Ghosn has often said he relishes taking on enormous challenges.
But with Renault and Nissan both struggling to recover their sales momentum in major markets and preparing for key model launches, some industry experts question Ghosn's interest in taking on GM's enormous problems.
You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.
© Copyright 2006 The Detroit News. All rights reserved.
****Automotive mergers and alliances****
-1989-
U.S.'s Ford Motor Co. buys U.K.'s Jaguar Plc.
-1990-
U.S.'s General Motors Corp. buys 50% of Sweden's Saab Automobile AB for $60 million.
-1991-
Germany's Volkswagen AG buys majority of Czechoslovakia's Skoda Auto AS.
-1993-
France's Renault SA and Sweden's Volvo AB abandon proposed merger because of objections from Volvo employees and management.
-1994-
Germany's Bayerische Motoren Werke AG buys U.K.'s Rover Group for $1.2 billion.
-1996-
Ford boosts stake in Japan's Mazda Motor Corp. to 33.4 percent from 24.5 percent for $482 million, gaining management control.
-1998-
Germany's Daimler-Benz AG buys U.S.'s Chrysler Corp. for $35 billion.
Volkswagen buys U.K.'s Bentley and Rolls-Royce Motor Cars for $854 million. It sells Rolls-Royce to BMW after BMW bought the name for $71 million from airplane-engine maker Rolls-Royce Group Plc.
Volkswagen buys Italy's Automobili Lamborghini SpA for an estimated $110 million.
GM spends $456 million to increase stake in Japanese truckmaker Isuzu Motors Ltd. to 49 percent from 37.5 percent.
Ford sells 9.4 percent stake in South Korea's Kia Motors Corp. for $11 million after Kia declares bankruptcy.
GM buys 6.7 percent stake in Japan's Suzuki Motor Corp. for $315.4 million.
-1999-
Ford buys Volvo Cars for $6.5 billion.
Renault buys 37 percent of Japan's Nissan Motor Co. for $5.4 billion.
GM buys 20 percent stake in Japan's Fuji Heavy Industries Ltd., the maker of Subaru cars, for $1.4 billion.
South Korea's Hyundai Group pays $960 million for controlling stake in Kia. Hyundai Motor Co. is later spun off from group. 2000
GM buys 20 percent of Italy's Fiat SpA for $2.4 billion.
Germany's DaimlerChrysler AG buys 34 percent of Japan's Mitsubishi Motors Corp. for $1.9 billion. It buys an additional 3.3 percent stake in Mitsubishi from truckmaker Volvo AB in 2001 for $297 million.
DaimlerChrysler buys 10.5 percent of Hyundai Motor for $428 million.
Volkswagen buys last 30 percent of Skoda for $305 million.
BMW sells Rover to Phoenix Venture Holdings Ltd. for 10 pounds.
-2001-
GM buys the 50 percent of Saab it doesn't already own for about $735 million. GM buys additional 10 percent stake in Suzuki for $653 million, raising total stake to 20 percent.
Japan's Toyota Motor Corp. boosts stake in Japanese truckmaker Hino Motors Ltd. to 50.1 percent from 36.5 percent for $542 million.
-2002-
Renault raises its stake in Nissan to 44 percent for $1.6 billion. Nissan buys 15 percent of Renault for $1.6 billion.
GM buys South Korea's Daewoo Motor Co. assets for $251 million. GM also cuts stake in Isuzu to 12 percent from 49 percent in a $512 million bailout deal for Isuzu that gives GM ownership of two joint-venture truck-engine operations.
-2004-
DaimlerChrysler sells 10.5 percent stake in Hyundai Motor for $912 million.
-2005-
GM pays Fiat $2 billion to end its 5-year-old alliance. GM sells stake in Fuji Heavy for $737 million. Deal includes Toyota paying GM $315 million for 8.7 percent of Fuji Heavy.
DaimlerChrysler sells its 12.4 percent stake in Mitsubishi Motors for 970 million euros.
Germany's Porsche AG buys 18.5 percent of Volkswagen. It now holds 21.2 percent and plans to increase that to 25.1 percent.
-2006-
GM sells 92.4 million Suzuki Motor shares back to Suzuki for $1.96 billion, cutting its stake in the Japanese company to 3 percent. GM announces plan to sell remaining 7.9 percent stake in Isuzu for $300 million.
Kirk Kerkorian's Tracinda Corp. asks GM to explore a three-way partnership with Nissan and Renault.
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