June 30, 2006
Key Investor Urges G.M. to Explore Bids
By MICHELINE MAYNARD
DETROIT, June 30 — The automakers Nissan of Japan and Renault of France are considering a three-way deal with the American automotive giant General Motors, in which the two companies would pay $3 billion for a 20 percent stake in G.M., people with knowledge of the discussions said today.
The proposed arrangement came to life at the initiation of G.M.'s biggest shareholder, Kirk Kerkorian, who discussed it last month with Carlos Ghosn, the Lebanese-born executive who serves as chief executive of both Renault and Nissan, these people said today.
In letters sent to both companies and disclosed today, Tracinda Corporation, which is owned by Mr. Kerkorian, said the combination would be in the best interests of all three companies. Each is facing market and financial challenges in its home market and elsewhere.
Such a combination would rank among the most important deals tin recent automotive history, like the one that linked Renault and Nissan in 1999 and the merger of Daimler-Benz and Chrysler in 1998. It conceivably could help G.M., which is facing a stiff challenge from Toyota, to remain the largest automaker in the industry.
It also could give Mr. Ghosn a direct role in running G.M., which lost more than $10 billion last year and is struggling to turn itself around.
The letters were included in a regulatory filing this morning with the Securities and Exchange Commission.
Mr. Kerkorian is the largest individual shareholder at G.M., holding a 9.9 percent stake in the auto company. He began purchasing G.M. shares about a year ago, and has yet to make a profit on his 56 million G.M. shares.
G.M.'s board held an emergency meeting this afternoon to discuss the situation. Its stock rose sharply on the news today and was trading at $29.76 late in the afternoon, a gain of $2.32 a share. In a statement, G.M. said it would take the proposal "under advisement."
Renault and Nissan said in a statement that their partnership had never been restricted to two companies, and could be expanded further "under the right circumstances and with the appropriate partners."
But, the companies said, "it is necessary that the G.M. board and management fully support this project" in order for discussions to begin. Support from the boards of Nissan and Renault would also be required, they added.
Tracinda's support, however, is unquestioned. The whole matter kicked off several weeks ago, when Jerome York, an advisor to Mr. Kerkorian who sits on the G.M. board, met with Mr. Ghosn in London, the people with knowledge of the meeting said.
Renault and Nissan are interested in a range of ventures with G.M., including sharing manufacturing operations, product development and engineering, these people said. Still to be resolved would be the role that Mr. Ghosn would play, as well as the future of Rick Wagoner, G.M.'s chief executive.
After exchanging phone calls with Mr. Kerkorian, Mr. Ghosn agreed to dine with him in Nashville on May 15. During the meal, Mr. Ghosn suggested that Renault and Nissan might each take 10 percent of G.M., for a total investment of about $3 billion, the people with knowledge of the meeting said.
Mr. York kept G.M.'s chief executive, Rick Wagoner, abreast of what was discussed at the meetings, these people added.
Tracinda's move reinforces Mr. Kerkorian's reputation as a force for change at the companies in which he invests, as he pushes to raise the stock price and generate a profit on his investment.
For example, he began buying shares in Chrysler in 1990, and became its biggest shareholder and a close ally of its chief executive at the time, Lee A. Iacocca. Five years later, after Mr. Iacocca had retired and Chrysler's stock price began to lag, he and Mr. Iacocca tried to take over the company.
They did not succeed in gaining control, but Chrysler eventually agreed to put one of Mr. Kerkorian's representatives on the board and to double the size of a stock-buyback program.
Last year, Mr. Kerkorian became involved with General Motors by buying its stock. In January, during a speech that praised Mr. Ghosn's efforts at Nissan, Mr. York called for G.M. to speed up its turnaround efforts, then already underway for about six months without having much affect on the company's deep losses in North America.
Mr. York called for G.M. to cut its dividend in half, a step the company later took. He also said the pay of board members, executives, managers and employees should be cut.
G.M.'s top five executives agreed to cuts, and board members agreed to be paid only in stock rather than take cash. Mr. York joined the company's board in February.
Soon after that, however, G.M.'s board reiterated its support for Mr. Wagoner, who faced pressure after the company was forced to restate its 2005 results over accounting errors. In light of that, it was not clear today whether either the board or Mr. Wagoner would entertain the idea of Mr. Ghosn becoming involved in the company's affairs.
Mr. Kerkorian's effort comes as both Nissan and Renault face their own challenges, which have somewhat tarnished Mr. Ghosn's reputation as the world's leading automotive executive.
Matters are particularly bumpy at Nissan, whose sales and market share in the United States have fallen this year while other Asian auto companies have grown robustly.
More than half the staff at Nissan's offices in California have decided not to relocate with the company as it opens a new headquarters outside Nashville. The company has also had to shift some production and engineering work back to Japan because its plants and staff in the United States were overloaded.
Meanwhile, Mr. Ghosn has moved to Paris from Tokyo, and is overseeing a restructuring effort at Renault, where he was an executive before taking charge of Nissan in the fall, 1999. Renault stopped selling cars in the United States after Chrysler bought American Motors, Renault's American partner, in 1987.
Mr. Ghosn said earlier this year that he did not expect the Renault turnaround to be as extensive as his efforts during the past four years at Nissan, where the company cut billions in automotive debt, increased its sales and rolled out a number of new vehicles.
John Casesa, a managing partner at Casesa Strategic Advisers in New York, said a deal would benefit Nissan and Renault by giving them better access to the world's largest car market.
Because the companies would only be buying a minority stake in G.M., they would not be saddled with all of G.M.'s problems, Mr. Casesa said.
Still, he said, "it'd be pretty messy on paper, having these three companies in a loose alliance." Even if no deal is struck, Mr. Casesa said, the proposal is a sign that Tracinda will keep the pressure on G.M. to accelerate its restructuring.
G.M., for its part, is busy closing all or part of a dozen plants and eliminating 30,000 jobs. On Monday, G.M. said that 35,000 of its 113,000 hourly workers had agreed to accept buyouts and retirement incentives to leave the company, more than enough to meet its goal. G.M. said it plans to take a $3.8 billion charge for the costs of the buyout program.
It is also in the process of selling a majority stake in its financing arm, G.M.A.C., and hopes to conclude the deal by the end of the year.
Dieter Zetsche, the chief executive of DaimlerChrysler, expressed doubt that a G.M.-Renault-Nissan partnership would materialize, and he questioned Mr. Kerkorian's motives in proposing the linkup, according to Reuters.
"Sometimes the news in itself is already the purpose, not necessarily leading to a result," Mr. Zetsche was quoted by Reuters as saying. "Consolidation is one theme in mature industries. I would stay put and listen for further developments."