Nissan, Renault, GM deal is urged

Investor Kerkorian proposes alliance

July 01, 2006|By DETROIT FREE PRESS

DETROIT -- In a startling move that could reshape General Motors Corp. and the global automotive industry, GM's largest single shareholder has urged France's Renault SA and Japan's Nissan Motor Co. Ltd. to buy a significant minority stake in the automaker to form a three-way global alliance.

Nissan and Renault are each considering buying a 10 percent stake in GM, which, combined with the 9.9 percent owned by billionaire investor Kirk Kerkorian, could exert heavy pressure on GM's board and Chief Executive Officer G. Richard Wagoner Jr. to make substantial cost cuts, according to a person familiar with the situation.

The proposal from Kerkorian, discussed in two brief letters sent to the three companies yesterday, raised the possibility of killing some GM brands, closing plants and eliminating jobs as more vehicles are imported from low-cost markets.

"Buying a sizable minority stake gives them a lot of power," said the person, who did not want to be named because he was not authorized to speak on behalf of the parties.

"You've got to look at it as radically ratcheting up the pressure for change. This is all about getting leverage on the board. My guess is GM is going to react very defensively."

But several auto industry experts dismissed it as a ruse by Kerkorian to sell his 56 million shares in GM, which have lost value since he bought a 9.9 percent stake last year.

"I think Kerkorian is looking for a way to sell his stock," said Maryann Keller, a former Wall Street analyst and author of several books on the automotive industry. "That's what he wants to do. There's no point for Nissan to do it."

Kerkorian's proposal itself earned him a paper return of more than $130 million on his GM investment yesterday. GM shares rose $2.35, or 8.6 percent, to $29.79, the highest price since October and only a fraction below the average price of $30.24 that he paid for his GM shares.

Kerkorian and his adviser, Jerome York, who sits on the GM board of directors, raised the idea in a recent meeting with Nissan Chairman Carlos Ghosn, said Nissan North America spokeswoman Frederique Le Greves.

In a statement, Nissan said it is open to expanding its alliance with Renault to include additional partners such as GM. "At this point, it is necessary that GM board and top management fully support this project in order to start the study of this opportunity after agreement of Renault and Nissan boards."

David Magee, author of the biography Turnaround: How Carlos Ghosn Rescued Nissan, believes that Ghosn is working with Kerkorian. "He's too smart for this to be an accident. He's thinking about six steps ahead of everybody in every conversation."

A three-way combination of Nissan, Renault and GM would be one of the most significant deals in the 100-plus-year history of the automotive industry, overshadowing the 1998 fusion of Germany's Daimler-Benz AG and Detroit's Chrysler Corp.

GM is already the world's biggest automaker: The top-seller in the United States, the world's biggest market, and in China, the world's fastest-growing market. But GM lost $10.6 billion last year, and analysts and pundits have raised the possibility of bankruptcy.

Ghosn led a phenomenal transformation of Nissan, bringing Japan's third-largest automaker back from near extinction to become a strong global contender, with the highest profit margins in the industry. Renault, partly owned by the French government, is one of the leading automakers in Europe.

Combining the three would create an automotive giant with $327 billion in revenues, annual sales of 14.3 million vehicles and the largest player in North America, Europe and China, according to CSM Worldwide.

In his letter to Wagoner yesterday, Kerkorian wrote: "We believe that participating in a global partnership-alliance with Renault and Nissan could enable General Motors to realize substantial synergies and cost savings and thereby greatly benefit the company and enhance shareholder value."

Kerkorian wrote in a second letter to Ghosn and Renault Chairman Louis Schweitzer that he believes "such a global alliance has the potential to materially strengthen the competitive position of all three companies in the increasingly challenging worldwide automotive industry, with the attendant benefits accruing to each company and its employees and shareholders."

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