DETROIT (AFX) - General Motors Corp.'s board has decided to explore an alliance with Renault SA and Nissan Motor Co., bowing to pressure from dissident billionaire shareholder Kirk Kerkorian who has chafed over the pace of the turnaround plan at the world's biggest automaker.
Chairman and Chief Executive Rick Wagoner will lead the talks, which stem from a proposal by Kerkorian.
In a teleconference meeting held Friday, the board authorized the company's management to consider the proposal and 'weigh the potential benefits of such an alliance in order to assist the board in its decision making,' board member George Fisher said in a statement.
'General Motors has a lot of experience with different types of alliances, and some have provided significant benefits to GM's competitive position and financial strength,' Wagoner said in a statement. '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. Given the complexity of any potential relationship, it has to be carefully considered on its merits before coming to any conclusion.'
Nissan and Renault issued statements saying that they look forward to starting the talks soon.
GM shares rose 28 cents to close at $29.48 on the New York Stock Exchange. They have been trading in a 52-week range of $18.33 to $37.70.
Legal experts and analysts said the GM board had no other option but to study Kerkorian's proposal. Without such action, the board likely would have faced shareholder lawsuits, they said.
Wagoner said that when the idea of joining with Renault of France and Nissan of Japan first was suggested, he contacted Carlos Ghosn, chief executive of both companies, and the two agreed to meet. The meeting could take place as soon as July 14, when Ghosn reportedly will be in the Detroit area.
'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.
Kerkorian's company, Tracinda Corp., issued a statement saying that it is pleased with the board's action.
'We believe that the upcoming meeting between Mr. Wagoner and Mr. Ghosn is a good first step, but a full and objective evaluation of this unique opportunity will require establishment of a board committee that receives independent financial and legal advice,' the statement 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.
The Nissan and Renault boards each endorsed the discussions after Tracinda disclosed the potential alliance in filings with the Securities and Exchange Commission June 30.
Gerald Meyers, the former chairman of American Motors Corp. who now teaches at the University of Michigan, said the board had no choice but to say it would consider the proposal.
'Due diligence -- that's the magic term,' he said. 'It's required, or else they are subject to shareholder suits.'
Meyers said the board was right not to go any further than it did. Jumping into an alliance would only distract from the company's turnaround plan at this point, he said.
'It puts it off to the side ... and lets them go ahead and do the large work, which is save themselves,' Meyers said.
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 that 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 to reduce production capacity and close 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 it has suffered from declining profits, high labor costs and growing competition from Asian automakers.
UAW President Ron Gettelfinger said the union was 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 on Friday, before the 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.'
Associated Press writers Sarah Karush in Detroit, Laurence Frost in Paris and Chisaki Watanabe in Tokyo contributed to this report.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
© 2006 AFX News
