General Motors Corp. may cut its dividend for the first time in more than 13 years, and will likely review bids for a majority stake in its finance arm, analysts said, as its board of directors meets Monday.
The board may also consider pay cuts for senior managers as billionaire investor Kirk Kerkorian -- GM’s largest individual shareholder -- pressures the struggling auto giant to save more cash.
Jerome York, an aide to Kerkorian, last month called on GM to halve its annual $1.1 billion dividend, worth $2 a share, as part of a turnaround effort. Many analysts have said that would be a good move.
GM’s board will likely cut its dividend by half on Monday, ”with weaker results as a backdrop,” Morgan Stanley analyst Jonathan Steinmetz wrote in a research note on Friday.
“An argument could be made for an outright elimination of the dividend, though we view this as unlikely,” he added.
GM and Kerkorian have held discussions about giving York a seat on the automaker’s board, but said in December they were unable to come to an agreement. Analysts say the board may revisit the decision in Monday’s meeting.
As of Jan. 25, Kerkorian had increased his stake in GM to 9.9 percent, according to a regulatory filing, and said he may buy 12 million additional shares if GM meets his demands for turning the company around.
The world’s largest automaker lost $8.6 billion in 2005, as it struggled with high labor and raw material costs, loss of U.S. market share to foreign rivals, and sluggish sales of sport utility vehicles -- its biggest generator of profits.
GM’s 2005 annual loss was its largest since 1992, when it last cut the dividend. The board cut the payout by 50 percent in November 1992.
At 8.3 percent, GM shares carry the highest dividend yield on the Dow.
Some analysts have said that cutting the dividend would also give Chief Executive Rick Wagoner leverage in future negotiations with its union, which has already ratified a deal that would save GM $1 billion in annual health-care expenses.
GMAC sale
GM is trying to sell a majority stake in its finance arm --General Motors Acceptance Corp. -- to restore GMAC’s investment-grade credit rating and get access to cheaper financing. Repeated credit downgrades of the automaker have affected GMAC because they share credit ratings.
Standard & Poor’s has said GMAC could achieve investment-grade status, but only if GM sells a controlling stake to a highly rated financial institution with a long-term commitment to automotive finance.
Analysts expect more information on the talks with potential partners to emerge from Monday’s board meeting.
Analyst Steinmetz said GM’s board might provide some ”clarity” on the state of the sale.
Wachovia Corp., the No. 4 U.S. bank, has teamed up with private equity firm Kohlberg Kravis Roberts & Co. to bid for a controlling stake in GMAC, sources close to the deal have said.
Another joint bid could come from a unit of Citigroup, the largest U.S. bank, and hedge fund Cerberus Capital Management, according to the same sources.
But Citigroup Chief Executive Charles Prince told a New York conference last week that he does not see GMAC as an operating company of Citigroup.
News reports have suggested any Citigroup involvement could occur through its private equity unit, Citigroup Alternative Investments.
Analysts have said a majority stake in GMAC could fetch between $10 billion and $15 billion.
York has also asked GM to cut senior management’s pay substantially, and get rid of brands such as Saab and Hummer --subjects the board may review during Monday’s meeting.