GM alliance talks seen likely

Board expected to OK study on global deal

July 06, 2006|By DETROIT FREE PRESS

DETROIT -- General Motors Corp.'s board of directors likely will give a green light to further discussions on a global alliance with France's Renault SA and Japan's Nissan Motor Co. when members meet tomorrow, analysts said yesterday.

The board has little choice but to consider the proposal by billionaire investor Kirk Kerkorian, who last week sent a letter to GM Chief Executive Rick Wagoner urging the automaker to consider joining the alliance.

"What are the options, to say, `We're not going to consider it?'" said Brad Rubin, a senior credit analyst at BNP Paribas. "Investors would be quite upset if they didn't research it. They need to go forward and put some sort of fact-finding mission together."

GM Chief Financial Officer Fritz Henderson will begin an analysis of the benefits of joining the alliance, a task that will take time away from the more important mission of implementing GM's plan to reverse last year's $10.6 billion in losses, Rubin said.

The proposal by Kerkorian, who owns 9.9 percent of GM's shares, has stirred international speculation over whether an even larger automotive giant than GM could be in the making.

Renault and Nissan are each prepared to buy up to 10 percent of GM's shares, which combined with Kerkorian's own stake could be used to put further pressure on Wagoner.

Some analysts see the move as an effort to get Carlos Ghosn, the chief executive of both Renault and Nissan, involved in GM's restructuring, or even to take over the automaker.

Ghosn is scheduled to be in Detroit on July 14 to attend a meeting on Nissan's future vehicles at the company's technical center in Farmington Hills, a Nissan official said. He also will meet Wagoner that day to discuss the alliance, a person familiar with the situation said. The person requested anonymity because he was not authorized to speak about the meeting.

GM officials contacted by the Detroit Free Press could not confirm the meeting.

In separate meetings Monday, Nissan and Renault gave Ghosn clearance to pursue the alliance with GM. GM said last week that it will take Kerkorian's proposal under advisement.

GM's regularly scheduled board meeting tomorrow, to be held by a telephone conference call, is unlikely to go beyond approval for further study, analysts said.

Studying the costs and benefits of GM's addition to the Renault and Nissan alliance will take substantial time, said David Giroux, a portfolio manager at Baltimore-based T. Rowe Price Group Inc., which owns GM shares in its mutual funds.

"There's a lot of gray areas as to how something like this would work," Giroux said.

And he noted that it is not a certainty that at the end there would be a deal for such an alliance. The willingness of Ghosn to consider a possible alliance signals that another smart auto investor sees value in GM, Giroux said.

Giroux said he would see any efforts to take Wagoner out of the CEO role at this point as a "short-sighted" move.

Several analysts are scratching their heads, trying to figure out the benefits of the alliance.

The "merger of equals" between Chrysler Corp. and Daimler-Benz AG in 1998 appeared to be a good match because the two automakers didn't have overlapping vehicle lineups or geographic strengths.

"The Chrysler and Daimler-Benz merger - there ... one was a luxury make and the other was a mainstream make," said Margarethe Wiersema, a professor of strategic management at the University of California-Irvine, who also served on GM's corporate finance staff in the late 1970s.

"I don't see where one fills in a product portfolio that the other doesn't have," Wiersema said.

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