Thursday, November 09, 2006

GM battle heats up as York quits

Saturday, October 07, 2006
GM battle heats up as York quits
Wall Street jittery over Kerkorian's next moves, sends stock sliding $2.
Bill Vlasic / The Detroit News

Kirk Kerkorian rocked General Motors Corp. on Friday when his top deputy, Jerry York, quit the GM board and raised "grave reservations" about the company's ability to compete against Asian automakers.

The billionaire investor also sent GM's stock into a free-fall by dropping plans to boost his 9.9 percent ownership stake in protest of GM's decision this week to reject an alliance with Renault SA and Nissan Motor Co.

The bombshell moves appear to be the first volleys in an all-out battle for control of GM between Kerkorian and GM Chairman Rick Wagoner and his board of directors.

Wall Street reacted nervously to the news, sending GM shares plunging $2.08 -- more than 6 percent -- to close at $31.05 in trading on the New York Stock Exchange.

The dramatic turn of events capped a tumultuous week in which GM's management and board abruptly ended talks with Renault-Nissan on a proposed three-way alliance heavily supported by Kerkorian.

And by refusing to hire independent advisers to study the alliance, the GM board threw down the gauntlet at Kerkorian, GM's largest individual shareholder.

The 89-year-old Las Vegas financer said Friday that he no longer will pursue plans to buy up to 12 million more shares of GM stock.

Instead, Kerkorian's Tracinda Corp. investment firm said it will "continue to review" its GM investment and the "market prices of its shares," and may continue to "acquire or dispose of additional shares."

Letter criticizes GM

Moreover, York's resignation came with a stinging letter to GM that criticized the "environment of the (GM) board room" and attacked the automaker for its negative cash flow and continued loss of U.S. market share.

"I have grave reservations concerning the ability of the company's current business model to successfully compete in the marketplace with those of the Asian producers," York wrote in a letter to George Fisher, GM's highest-ranking outside director.

GM fired back at Kerkorian and York with a lengthy statement that defended its current turnaround plans and its decision to terminate the alliance discussions with Renault-Nissan.

"The GM board concluded that the alliance framework required by Renault-Nissan would substantially disadvantage GM shareholders," the company said.

GM added that its strategy to slash manufacturing jobs and other costs is "making real progress" toward turning around the company after a huge $10.6 billion loss last year.

"Through its support and actions, the GM board has indicated the best way to drive value is to continue to remain focused and vigilant in our stated turnaround program," GM said.

The war of words could be a prelude to an epic struggle between Kerkorian, who unsuccessfully tried to take over Chrysler Corp. in 1995, and Wagoner, who appears determined to preserve GM's independence.

"We believe that Tracinda may be focused on a significant management change (at GM)," auto analyst John Murphy of Merrill Lynch said Friday in a report to investors.

York's resignation from the GM board -- first reported as a possibility Thursday by The Detroit News -- frees the former Chrysler and IBM Corp. chief financial officer to lead Kerkorian's assault.

In his letter to Fisher, York said "there is little point in my remaining on the board" after GM terminated alliance discussions with Renault-Nissan on Tuesday.

Wagoner said this week that the 12-member board had voted "unanimously" to end the talks.

But York said in his letter that "there was certainly not a meeting of the minds" on how the potential alliance was evaluated.

"The right thing to have done here -- from a governance perspective if not a legal perspective -- would have been for the board to have hired its own independent advisers," York said.

GM: Vote was unanimous

A GM spokesman said Friday that the 12-member GM board -- which consisted of Wagoner and 11 outside directors including York -- had voted unanimously in a voice vote Tuesday to reject the alliance.

"Absolutely, it was unanimous," said Tony Cervone of GM. "There was a verbal vote taken."

Whatever happened behind closed doors at the board meeting did nothing to change York's pessimistic assessment of GM's business prospects.

Before joining the board in February, York publicly attacked what he called the "lack of urgency" in GM's efforts to reverse its decades-long slide in U.S. market share and return its North American operations to profitability.

In May, York first approached Carlos Ghosn, chief executive of Renault and Nissan, about expanding his Franco-Japanese global auto partnership to include GM. Kerkorian personally asked Wagoner to consider alliance talks as well.

In mid-July, Wagoner and Ghosn announced they would lead a 90-day study of a potential three-way alliance between GM, Renault and Nissan. However, the talks snagged quickly over how each automaker would benefit from combining parts purchasing and vehicle development programs.

The negotiations fell apart last week during a summit meeting of Wagoner and Ghosn at the Paris Auto Show.

The chief reason cited by both sides was GM's demand for financial compensation for joining the alliance as its largest and most influential member.

While the two CEOs said in Paris that they would continue the discussions until a mid-October deadline, the GM board rejected the proposed alliance outright at a meeting in Detroit on Tuesday.

Before the talks collapsed, Kerkorian went public with plans to raise his stake in GM to as high as 12 percent. At the same time, he urged GM's board to hire independent advisers to study the proposed alliance before making any final decision.

But by ending the talks without authorizing an outside review, the GM board sent Kerkorian into attack mode.

Despite pulling back on plans to buy the additional GM shares, Kerkorian indicated Friday that he is far from finished with GM.

In its filing with the U.S. Securities and Exchange Commission, Tracinda said it will make further investment moves "based on market and general economic conditions, the business affairs and financial condition of General Motors, the market price of its shares and other factors deemed relevant."

Besides buying or selling shares to exert pressure on GM, the possibility also exists for Kerkorian to launch a proxy fight to replace all or part of GM's board of directors.

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

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