Kerkorian Aims to Boost GM Stake In Bid to Add Pressure on Wagoner
09-29-2006, 09:20 AM
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Kerkorian Aims to Boost GM Stake In Bid to Add Pressure on Wagoner
From the Wall Street Journal
By JOHN D. STOLL and MONICA LANGLEY
September 29, 2006
Raising the stakes in his bet on overhauling General Motors Corp., billionaire investor Kirk Kerkorian said he wants to buy as many as 12 million additional shares in the auto maker -- potentially boosting his ownership to 12% from 9.9% and making him GM's second-largest shareholder.
The move would increase Mr. Kerkorian's influence and that of Jerome York, his representative on GM's board, at a time when GM Chairman and Chief Executive Rick Wagoner Jr. appears to have bolstered his standing with the company's other board members. With Mr. Kerkorian pushing GM to enter into an alliance with Renault SA and its partner Nissan Motor Co., Mr. Wagoner has been winning support for his more cautious argument that GM shouldn't pursue such a relationship without clear and specific benefits, say people familiar with the matter.
Mr. Kerkorian's plans could face a hitch. To increase his stake, the Las Vegas investor -- who owns his GM shares through his investment company, Tracinda Corp. -- could use the auto maker's blessing. GM's backing would make it easier for him to obtain the regulatory approvals he would need to exceed a 10% stake in the company. Because GM's General Motors Acceptance Corp. unit has certain banking and insurance subsidiaries, exceeding the 10% threshold would require the approval of two state insurance agencies, the Office of Thrift Supervision and the Federal Deposit Insurance Corp.
In light of wide discrepancies between the savings GM says it could reap from an alliance with Renault and Nissan and how much those companies say could be saved, Mr. Kerkorian is also pressing GM's board to commission its own independent analysis of such a tie-up.
Yesterday, GM was noncommittal about what it would do. Both parties indicate their relations remain friendly. At the Paris auto show, which opened to the media yesterday, GM Chief Financial Officer Frederick "Fritz" Henderson expressed little concern about the prospect of Mr. Kerkorian raising his stake in the auto maker. "We always welcome investments by major shareholders in our company," he said.
But underlying Mr. Kerkorian's move is growing tension between the two camps and a sense of urgency on the part of the dissident investor to push the value of his GM shares higher. At the stock's 4 p.m. closing price yesterday of $33.06 a share in New York Stock Exchange composite trading, Mr. Kerkorian has seen a gain of 14% of his GM investment, but people close to the matter say he is invested for the long term.
The maneuvering over GM boils down to a battle between Mr. Kerkorian, who wants the auto maker to move more aggressively to restructure its business, and Mr. Wagoner, who believes his own turnaround plan is taking hold at "an unprecedented pace." Mr. Kerkorian believes a three-way alliance with Renault of France and Nissan of Japan would enable GM to cut its costs significantly and to benefit from the influence of Carlos Ghosn, who is chief executive of both companies. Mr. Ghosn is credited with turning around Nissan, which was near collapse when he took the helm in 1999, and remaking it into one of the world's most-profitable auto makers.
Mr. Wagoner, who met with Mr. Ghosn in Paris this week, has been much more skeptical of an alliance. "GM sells more than nine million vehicles a year globally. It's not logical or responsible to say we must have a partner to recover," he said in an interview with Automotive News at the Paris show.
In a filing yesterday with the Securities and Exchange Commission, Mr. Kerkorian's Tracinda Corp. said it is interested in buying six million more GM shares and may consider buying another six million shares as well. Mr. Kerkorian is already GM's largest individual investor, and fourth-largest overall behind three investment funds. With a 12% stake, he would become the second-largest shareholder behind State Street Global Advisors, which owns 15% of GM, according to FactSet Research Systems Inc. (Read the full text of the filing and letter.)
Terry Christensen, Mr. Kerkorian's lead attorney, said in a telephone interview that Tracinda's only interest right now is to increase its GM stake and "encourage the company to have the board utilize independent automotive experts to analyze the potential alliance" with Renault and Nissan.
Mr. Kerkorian's desire to increase his stake puts GM in an interesting spot. If it fails to lend him its support, the company could provoke an open boardroom battle when its board meets next week. But supporting the move could give Mr. Kerkorian more influence over the company's directors. To shore up its support, GM's management has been meeting frequently with other large investors, according to a person familiar with the situation.
In his SEC filing, Mr. Kerkorian said that "there should be strong GM board involvement" in analyzing a potential alliance with Renault and Nissan, including the use of independent advisers, a step Mr. Wagoner has opposed.
GM's lawyers are evaluating Mr. Kerkorian's position and intend to make a recommendation to GM's board, which is scheduled to meet Tuesday, say people familiar with the matter. GM's Mr. Henderson said the company's executives have looked at the potential of an alliance "thoughtfully, objectively and professionally."
"Our board is actively involved in consideration of this matter -- the full board has been briefed on a regular basis and we'll continue to do so," he added.
Mr. York, Mr. Kerkorian's representative, will push for an outside review, but it's unclear how many directors will support him, because the majority appear to be solidly behind Mr. Wagoner, say people familiar with the matter.
Mr. Wagoner's management team began discussing potential areas of cooperation with counterparts from Renault and Nissan about two months ago. But expectations of an agreement dimmed Wednesday after a three-hour meeting revealed a significant difference of opinion between Mr. Wagoner and Mr. Ghosn.
Mr. Ghosn has told associates an alliance would eventually enable GM to cut its costs by $10 billion a year, but GM executives are "baffled" by that figure and estimate savings of only as much as $2 billion for GM in the first three years of any alliance, a person familiar with the matter said. At their meeting the two men agreed to continue the talks until Oct. 15 as they had originally planned.
Mr. Kerkorian wants independent verification about how valuable the alliance could be to GM. His desire to purchase more shares is intended to demonstrate his long-term interest in GM and to add credibility to his position, according to a person familiar with the situation.
Earlier this year, on the heels of a $10.6 billion loss in 2005, Mr. Wagoner's job was rumored to be in jeopardy, but the CEO persuaded his board to give him a vote of confidence. Since then, Mr. Wagoner has engineered a substantial improvement in GM's performance, thanks to a new line of sport-utility models, higher passenger car sales and health-care cost cuts. But compared with Toyota Motor Corp., Honda Motor Co. or Nissan, GM still lags far behind in automotive profitability. And the company's financial foundations remain shaky, its balance sheet burdened by billions in health-care liabilities. Its debt carries a speculative-grade, or "junk," rating, which puts the auto maker at a disadvantage when borrowing money.
Before Tracinda's filing was made public, Mr. Wagoner reiterated at the Paris show a message he has been spreading for weeks -- that North American restructuring efforts are moving faster than expected due to the pace of cost cutting and the positive reception given to the company's new products. "The pace of the turnaround has shocked people," he said.
By JOHN D. STOLL and MONICA LANGLEY
September 29, 2006
Raising the stakes in his bet on overhauling General Motors Corp., billionaire investor Kirk Kerkorian said he wants to buy as many as 12 million additional shares in the auto maker -- potentially boosting his ownership to 12% from 9.9% and making him GM's second-largest shareholder.
The move would increase Mr. Kerkorian's influence and that of Jerome York, his representative on GM's board, at a time when GM Chairman and Chief Executive Rick Wagoner Jr. appears to have bolstered his standing with the company's other board members. With Mr. Kerkorian pushing GM to enter into an alliance with Renault SA and its partner Nissan Motor Co., Mr. Wagoner has been winning support for his more cautious argument that GM shouldn't pursue such a relationship without clear and specific benefits, say people familiar with the matter.
Mr. Kerkorian's plans could face a hitch. To increase his stake, the Las Vegas investor -- who owns his GM shares through his investment company, Tracinda Corp. -- could use the auto maker's blessing. GM's backing would make it easier for him to obtain the regulatory approvals he would need to exceed a 10% stake in the company. Because GM's General Motors Acceptance Corp. unit has certain banking and insurance subsidiaries, exceeding the 10% threshold would require the approval of two state insurance agencies, the Office of Thrift Supervision and the Federal Deposit Insurance Corp.
In light of wide discrepancies between the savings GM says it could reap from an alliance with Renault and Nissan and how much those companies say could be saved, Mr. Kerkorian is also pressing GM's board to commission its own independent analysis of such a tie-up.
Yesterday, GM was noncommittal about what it would do. Both parties indicate their relations remain friendly. At the Paris auto show, which opened to the media yesterday, GM Chief Financial Officer Frederick "Fritz" Henderson expressed little concern about the prospect of Mr. Kerkorian raising his stake in the auto maker. "We always welcome investments by major shareholders in our company," he said.
But underlying Mr. Kerkorian's move is growing tension between the two camps and a sense of urgency on the part of the dissident investor to push the value of his GM shares higher. At the stock's 4 p.m. closing price yesterday of $33.06 a share in New York Stock Exchange composite trading, Mr. Kerkorian has seen a gain of 14% of his GM investment, but people close to the matter say he is invested for the long term.
The maneuvering over GM boils down to a battle between Mr. Kerkorian, who wants the auto maker to move more aggressively to restructure its business, and Mr. Wagoner, who believes his own turnaround plan is taking hold at "an unprecedented pace." Mr. Kerkorian believes a three-way alliance with Renault of France and Nissan of Japan would enable GM to cut its costs significantly and to benefit from the influence of Carlos Ghosn, who is chief executive of both companies. Mr. Ghosn is credited with turning around Nissan, which was near collapse when he took the helm in 1999, and remaking it into one of the world's most-profitable auto makers.
Mr. Wagoner, who met with Mr. Ghosn in Paris this week, has been much more skeptical of an alliance. "GM sells more than nine million vehicles a year globally. It's not logical or responsible to say we must have a partner to recover," he said in an interview with Automotive News at the Paris show.
In a filing yesterday with the Securities and Exchange Commission, Mr. Kerkorian's Tracinda Corp. said it is interested in buying six million more GM shares and may consider buying another six million shares as well. Mr. Kerkorian is already GM's largest individual investor, and fourth-largest overall behind three investment funds. With a 12% stake, he would become the second-largest shareholder behind State Street Global Advisors, which owns 15% of GM, according to FactSet Research Systems Inc. (Read the full text of the filing and letter.)
Terry Christensen, Mr. Kerkorian's lead attorney, said in a telephone interview that Tracinda's only interest right now is to increase its GM stake and "encourage the company to have the board utilize independent automotive experts to analyze the potential alliance" with Renault and Nissan.
Mr. Kerkorian's desire to increase his stake puts GM in an interesting spot. If it fails to lend him its support, the company could provoke an open boardroom battle when its board meets next week. But supporting the move could give Mr. Kerkorian more influence over the company's directors. To shore up its support, GM's management has been meeting frequently with other large investors, according to a person familiar with the situation.
In his SEC filing, Mr. Kerkorian said that "there should be strong GM board involvement" in analyzing a potential alliance with Renault and Nissan, including the use of independent advisers, a step Mr. Wagoner has opposed.
GM's lawyers are evaluating Mr. Kerkorian's position and intend to make a recommendation to GM's board, which is scheduled to meet Tuesday, say people familiar with the matter. GM's Mr. Henderson said the company's executives have looked at the potential of an alliance "thoughtfully, objectively and professionally."
"Our board is actively involved in consideration of this matter -- the full board has been briefed on a regular basis and we'll continue to do so," he added.
Mr. York, Mr. Kerkorian's representative, will push for an outside review, but it's unclear how many directors will support him, because the majority appear to be solidly behind Mr. Wagoner, say people familiar with the matter.
Mr. Wagoner's management team began discussing potential areas of cooperation with counterparts from Renault and Nissan about two months ago. But expectations of an agreement dimmed Wednesday after a three-hour meeting revealed a significant difference of opinion between Mr. Wagoner and Mr. Ghosn.
Mr. Ghosn has told associates an alliance would eventually enable GM to cut its costs by $10 billion a year, but GM executives are "baffled" by that figure and estimate savings of only as much as $2 billion for GM in the first three years of any alliance, a person familiar with the matter said. At their meeting the two men agreed to continue the talks until Oct. 15 as they had originally planned.
Mr. Kerkorian wants independent verification about how valuable the alliance could be to GM. His desire to purchase more shares is intended to demonstrate his long-term interest in GM and to add credibility to his position, according to a person familiar with the situation.
Earlier this year, on the heels of a $10.6 billion loss in 2005, Mr. Wagoner's job was rumored to be in jeopardy, but the CEO persuaded his board to give him a vote of confidence. Since then, Mr. Wagoner has engineered a substantial improvement in GM's performance, thanks to a new line of sport-utility models, higher passenger car sales and health-care cost cuts. But compared with Toyota Motor Corp., Honda Motor Co. or Nissan, GM still lags far behind in automotive profitability. And the company's financial foundations remain shaky, its balance sheet burdened by billions in health-care liabilities. Its debt carries a speculative-grade, or "junk," rating, which puts the auto maker at a disadvantage when borrowing money.
Before Tracinda's filing was made public, Mr. Wagoner reiterated at the Paris show a message he has been spreading for weeks -- that North American restructuring efforts are moving faster than expected due to the pace of cost cutting and the positive reception given to the company's new products. "The pace of the turnaround has shocked people," he said.
09-29-2006, 10:52 AM
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Re: Kerkorian Aims to Boost GM Stake In Bid to Add Pressure on Wagoner
Preferably with something sharp. Like a bullet.
I mean really, hes "invested for the long term" but hes pushing for a move which we dont know will do nothing good other than create a big price spike.
Wagoner isn't interested, Ghosn isn't interested, this where rich people get a bad name. "I have more money so I know whats best."
I mean really, hes "invested for the long term" but hes pushing for a move which we dont know will do nothing good other than create a big price spike.
Wagoner isn't interested, Ghosn isn't interested, this where rich people get a bad name. "I have more money so I know whats best."
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