Saturday, July 08, 2006

Why Kerkorian pulled GM trigger

Tuesday, July 04, 2006
Why Kerkorian pulled GM trigger
Impatient investor forces automaker's hand even after CEO Wagoner agreed to meet with Renault-Nissan chief Ghosn.
Bill Vlasic and Christine Tierney / The Detroit News

After an intense week of clandestine meetings and secret phone calls, Kirk Kerkorian finally got what he wanted from Rick Wagoner on June 22.

On that day, Wagoner, the chairman of General Motors Corp., called Carlos Ghosn, chief executive of Renault SA of France and Nissan Motor Co. of Japan. Together, they agreed to meet face to face in mid-July to discuss a blockbuster deal -- a global alliance of GM, Renault and Nissan.

But that wasn't soon enough for the increasingly impatient Kerkorian, GM's largest individual shareholder.

So on June 30, Kerkorian ratcheted up the pressure by going public with his startling plan to push GM into a partnership with the two foreign automakers.

Now, the heat is on Wagoner and GM's board of directors to move on Kerkorian's demand that the No. 1 U.S. automaker "form a (board) committee immediately and fully explore" joining forces with Renault-Nissan.

Some GM directors are receptive to the idea, and at least one other major shareholder has endorsed the concept, according to people close to the situation.

And with the GM board scheduled to meet by phone this Friday, Kerkorian is expecting action, according to his longtime lawyer, Terry Christensen.

"We included the word 'immediately' because we felt this opportunity should be at the very top of GM's priority list," Christensen told The Detroit News on Monday. "We felt it was important the board should participate in exploring it and going forward with it."

Playing field altered

It's a power play that has riveted the automotive world, and could change the landscape of the industry for years to come.

On one side, the billionaire investor Kerkorian has courted Ghosn, the hard-charging CEO of Renault-Nissan, to play a key role in a long-awaited turnaround of struggling GM.

On the other side is a GM executive team led by Wagoner, the beleaguered chairman who has painstakingly laid plans to downsize the company's North American operations and lead it back from a $10.6 billion loss in 2005.

Wall Street analysts believe the formation of a GM-Renault-Nissan alliance could be the first step in turning over the reins of GM from Wagoner to Ghosn, a Brazilian-born French national.

"The fate of Wagoner under the alliance would be in question," said Rob Hinchliffe of UBS Investment Research. "Most likely, Ghosn would take the lead."

Wagoner and Ghosn are still slated to get together July 14 in Detroit, according to people with knowledge of the meeting.

GM has declined all comment on Renault-Nissan, other than to say that the GM board will take the issue "under advisement."

But sources close to Renault-Nissan confirmed that Ghosn is scheduled to fly from New York to Detroit on July 14.

A one-on-one meeting of Wagoner and Ghosn could be the game-changing event that Kerkorian and his top deputy, GM director Jerry York, have been seeking for several weeks.

Since May, Kerkorian and York have been reaching out to Ghosn, whose dramatic turnaround of Nissan has made him one of most daring and sought-after automotive executives in the world.

Kerkorian has chafed at the pace of change at GM since his investment arm, Tracinda Corp., began building his 9.9-percent stake in the automaker last year. And he believes GM's business model is fundamentally broken.

Courting Renault's Ghosn

One analyst viewed the recruitment of Ghosn as the underlying motive behind linking GM to Renault-Nissan.

"We think Tracinda's idea to push Renault-Nissan and GM together does not have much fundamental strength, but instead is a ploy to get (Ghosn) at least involved in GM management," said Ron Tadross of Bank of America.

That assessment is reflected in the events that led up to Kerkorian's June 30 decision to send two letters -- one to Wagoner, and the other to Ghosn and Renault Chairman Louis Schweitzer.

The letters, made public in filings with the U.S. Securities and Exchange Commission, laid out the bare bones of Kerkorian's premise that "General Motors, Renault and Nissan should explore a three-company, partnership-based alliance."

But the letters were only the final touch for Kerkorian, the 89-year-old casino mogul whose influence as a major shareholder in Chrysler Corp. led to its sale to German automaker Daimler-Benz AG in 1998.

Based on interviews with people familiar with the situation, The News has learned that Kerkorian and York spent weeks lining up Ghosn's interest in a GM deal. Then, with Ghosn committed to exploring the deal, Kerkorian and York turned the pressure up on Wagoner.

York, a former chief financial officer at Chrysler and IBM Corp., instigated the courtship of Ghosn.

As Kerkorian's chief adviser on GM, York was elected to the automaker's board in January. Almost immediately, he began citing Nissan's turnaround under Ghosn as a model for GM to follow.

York and Ghosn first met in May in London, where both were traveling on business.

People familiar with the meeting said the two men agreed that the global auto industry was on the verge of a radical restructuring. York broached the subject of GM linking up with Renault-Nissan, which formed their own inter-continental alliance in 1999.

Ghosn asked to meet with Kerkorian in the United States. The opportunity arose on June 15, when Ghosn was attending the dedication of Nissan's new U.S. headquarters in Nashville, Tenn.

After a series of media interviews after the ceremony, Ghosn left the Nissan event, presumably to board a corporate jet for a flight to Tokyo. But instead, Ghosn went alone to a Nashville hotel and met in a private dining room with Kerkorian, York and Christensen.

For over two hours, they discussed the product synergies and cost savings that could be achieved in an alliance of GM, Renault and Nissan. At one point, Ghosn went into detail about how an underutilized GM truck plant could easily be used to build Nissan models.

Ghosn also suggested that Renault-Nissan consider buying a 20 percent stake in GM to cement an alliance. Ghosn was "obviously highly knowledgeable" about GM and "extremely earnest" about the benefits of a three-way partnership, said a person familiar with the meeting.

Kerkorian and York left the meeting enthused and ready to present their plan to Wagoner.

That weekend, York called Wagoner and set up a telephone conference for Monday, June 19. At that time, York laid out details of the meeting with Ghosn and the case for an alliance.

Wagoner, according to people with knowledge of the situation, agreed to speak by phone with Kerkorian the following day, Tuesday, June 20.

But the GM chairman did not make the call that day, angering Kerkorian. They did speak on June 21, and Kerkorian pressed his case for a deal with Renault-Nissan.

The following day, June 22, Wagoner met in Detroit with York. After York presented his rationale for a three-way alliance, Wagoner called Ghosn. The two CEOs then agreed to meet on July 14.

Action not enough

However, Kerkorian was not entirely satisfied. There was no GM board meeting called, and he received no follow-up call from Wagoner. The question arose in Kerkorian's camp as to how seriously Wagoner was taking their initiative.

With that question hanging, Kerkorian decided to play his trump card.

He wrote a letter to Wagoner and GM's board, which said in part: "We believe that participating in a global partnership-alliance with Renault and Nissan could enable General Motors to realize substantial synergies and cost savings…"

Kerkorian also wrote Ghosn and Schweitzer: "We are writing to advise you that Tracinda has asked the board of directors of General Motors Corp. to form a committee to immediately and fully explore, together with management, participating in the Renault-Nissan partnership-alliance."

The letters were filed with the SEC, and the reaction was immediate. GM's stock soared 9 percent, and the media erupted in a flurry of headlines about the possibility of a GM-Renault-Nissan deal.

GM's board met on a conference call that afternoon. When Wagoner outlined the concept of an alliance with Renault-Nissan, several of the directors said the idea was worth pursuing. A few, however, wondered why an issue this large had come to them in such a roundabout way.

But the wheels of a possible deal were turning fast by then. At least one other major GM shareholder has since expressed support to Tracinda and GM of the concept. The boards of both Renault and Nissan said Monday that they had empowered Ghosn to pursue further discussions directly with GM.

On Friday, the GM board will convene again. This time, Kerkorian's agenda for GM will most likely be the first order of business.

You can reach Bill Vlasic at (313) 222-2152 or

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