Tuesday, October 03, 2006

GM board faces key decision on alliance

Tuesday, October 03, 2006
GM board faces key decision on alliance
Directors may decide today whether to approve a third-party study of Nissan-Renault link-up.
Bill Vlasic and Christine Tierney / The Detroit News

DETROIT -- All eyes are on the General Motors Corp. board today as directors evaluate the widely different analyses of a blockbuster alliance of GM, Renault SA and Nissan Motor Co.

While GM management is downplaying the benefits of an alliance to the U.S. automaker, the Renault-Nissan side is confident that GM eventually could save as much as $10 billion a year by joining their partnership.

And hovering over the proceedings is billionaire GM shareholder Kirk Kerkorian, who is calling for the board to name independent advisers to study synergies in the proposed three-way alliance.

GM declined comment Monday on the agenda for today's meeting of the 12-member GM board headed by Chairman Rick Wagoner.

But people close to the company said Wagoner is certain to report on last week's summit meeting with Renault-Nissan chief Carlos Ghosn in Paris -- and possibly present GM's recommendation against the deal.

"GM management has essentially completed its analysis," said a person familiar with the matter.

The GM board also is expected to hear an update on the automaker's financial outlook for the rest of the year and discuss whether to authorize an independent study of the proposed alliance.

A key issue is whether the board believes that GM's performance will continue on an upward trajectory following a stronger-than-expected second quarter. GM reports its third-quarter financial results later this month.

Last week, Wagoner appeared unlikely to support a hook-up with Renault-Nissan because of GM management's confidence in its turnaround effort. Some industry experts said Wagoner's reticence means the deal is all but dead.

"My deepest conviction is that nothing will take place," said Patrice Solero, an analyst with Kepler Equities in Paris. "My perception is that no one -- particularly from GM's part -- is seriously investigating the possibilities."

Alliance talks between GM and Renault-Nissan began in mid-July after Kerkorian, GM's largest single shareholder, conceived the idea and presented it to Ghosn and Wagoner.

However, after 10 weeks of closed-door talks, insiders say that GM has a far different interpretation than Renault-Nissan of the benefits of a three-way alliance.

Ghosn, the CEO of both Renault and Nissan, has told GM that he believes the automaker could save up to $10 billion annually on parts purchasing, vehicle development costs and other areas if it joined the alliance. However, GM's study team sees the benefits as far less -- possibly $3 billion a year.

One senior GM executive hinted last week that the automaker might get more synergies from its current restructuring of its own global operations. "By and large, synergies and cost savings are easier to get within the corporation," said GM Vice Chairman Bob Lutz.

Wagoner and Ghosn agreed last week to continue the talks until the previously-set Oct. 15 deadline.

However, Ghosn has told associates that he would push back the deadline if GM requested more time in order to complete an independent study. He said last week that he will be patient in executing his strategy to bring a North American partner into the alliance of Renault of France and Japan's Nissan.

"Are we in a hurry?" Ghosn was asked by a reporter. "No, we're not in a hurry. This is more about a long-term strategy than a short-term fix for anybody."

Analysts think that if GM rejects the alliance, that Ghosn will immediately approach Ford Motor Co. to open talks.

But the next move is up to GM's board, which is sure to hear from GM director Jerry York, a close aide to Kerkorian and a vocal supporter of Ghosn's accomplishments at Renault-Nissan. York is expected to argue for a third-party study.

Last Thursday, Kerkorian's Tracinda Corp. investment arm said it is planning to purchase up to another 12 million GM shares that would boost its stake in the automaker from its current 9.9 percent to about 12 percent.

And Kerkorian left no doubt that whatever the alliance talks have yielded thus far, he believes that a "strong opportunity exists" for a three-way partnership of GM, Renault and Nissan.

One huge stumbling block in the talks has been a possible exchange of equity between the three prospective partners.

People familiar with the matter say Ghosn is interested in Renault and Nissan each buying a 10 percent stake in GM, with GM purchasing a similar stake in the French and Japanese companies.

However, GM insiders say that the automaker can't afford to spend its precious capital on stock in Renault and Nissan. GM is in the midst of a costly overhaul of its North American operations after the company reported a $10.6 billion loss last year.

The GM board also is likely to consider whether deciding against a third-party study of the deal opens the company to shareholder lawsuits.

"The question is under what circumstances is it obligated to seek guidance, legal advice about an investment decision apart from the company's management," said Mark Sargent, dean of the Villanova University Law School and an expert on securities law. "The way you really protect yourself is the board obtains advice independent of that provided by management."

Detroit News Staff Writer David Shepardson contributed to this report. You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.

© Copyright 2006 The Detroit News. All rights reserved.


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