With its arms twisted by disgruntled shareholder Kirk Kerkorian, the General Motors Corp. board decided Friday to have management look into linking the world’s largest automaker with Renault SA and Nissan Motor Co.
Experts say GM really had no choice.
Had it balked at Kerkorian’s proposal to study a three-way alliance, it likely would have been sued by Kerkorian or others for breaching its duty to stockholders.
Kerkorian, whose Tracinda Corp. owns 9.9 percent of GM’s common stock, has been unhappy with the pace of GM’s turnaround efforts.
Tracinda said in a statement that it was pleased with GM’s action but said an objective evaluation would require not only a meeting but a special board committee “that receives independent financial and legal advice.”
Meeting by teleconference, the GM board decided that Chairman and Chief Executive Rick Wagoner should lead the talks. Wagoner already had arranged a meeting with Carlos Ghosn, CEO of both Nissan and Renault, which likely will take place in the Detroit area July 14.
GM’s management will “weigh the potential benefits of such an alliance in order to assist the board in its decision making,” independent director George Fisher said in a statement.
Wagoner said GM has experience with different alliances, some of which have benefited GM.
“We will enter into discussions with the managements of Renault and Nissan with an open mind — eager to hear their ideas of how an alliance between our companies might work to our mutual benefit,” Wagoner said. “Given the complexity of any potential relationship, it has to be carefully considered on its merits before coming to any conclusion.”
Nissan and Renault both issued statements saying that they look forward to starting the talks soon. Their boards previously expressed interest in the alliance.
GM shares rose about 1 percent.
“We periodically receive interesting proposals, and we owe it to the company and its shareholders to explore how they might work, and to objectively weigh the potential benefits and issues that each might present,” Wagoner said.
Fisher, retired chairman and CEO of Eastman Kodak Co., said the board will monitor the talks and make sure they serve the best interest of all GM stockholders.
Gerald Meyers, the former chairman of American Motors Corp. who now teaches at the University of Michigan, said Kerkorian left the GM board with no other options.
“Due diligence — that’s the magic term,” he said. “It’s required, or else they are subject to shareholder suits.”
The board would have responded in the same manner even in the case of a hostile takeover attempt, said Peter Henning, a Wayne State University Law School professor and former attorney with the Securities and Exchange Commission.
“They don’t have to agree to this, and they could even come back with a counterproposal, but there’s no requirement that they have to respond with anything more than ‘We studied it and we don’t consider it best for the company,”’ Henning said.
Analysts and dealers who know Wagoner have said he likely is against the proposal, instead preferring to let his turnaround plan play out. Last week, the company announced that 35,000 hourly workers will retire or take buyouts, helping it reduce production capacity as it closes 12 plants by 2008. It has received health care concessions from the United Auto Workers union and is coming close to resolving cost problems at Delphi Corp., GM’s largest parts supplier that the automaker spun off into a separate company in 1999.
Yet GM continues to suffer from declining profits, high labor costs and growing competition from Asian automakers.
Renault and Nissan, which are closely tied through a cross-ownership arrangement, have problems of their own, with Renault sales slipping and Nissan facing a major car recall and sagging U.S. sales.
The prospect of an alliance has sent shudders through the UAW. President Ron Gettelfinger said Friday that the union is extremely concerned about the proposal.
“We’re seeing a further erosion of good jobs in the country should this come about,” he told WJR-AM in Detroit before the GM board’s decision. “The entire complexion of the auto industry in the future will be determined by this.”
But Gettelfinger said he did not believe an alliance would go through.
“I do trust that Rick Wagoner and his team can get this behind him as quickly as possible and stay focused on what they were really starting to make inroads on, and that’s moving General Motors forward,” he said.
David Larcker, an expert in corporate governance at the Stanford University Graduate School of Business, estimated it would take at least a year to study the proposal.
“Just the data collection exercise and the number-crunching would take a considerable amount of time,” he said, adding that there are also complex legal and regulatory issues to sort through.
“It would be astounding if they didn’t go through the process in a rigorous and thoughtful manner. Ultimately, they’ll be called to justify what they did by shareholders and big institutional holders.”