GM CEO likely to face fresh pressure from billionaire investor

AFP via The Tocqueville Connection ^ | 10/05/2006

[Republicain]

DETROIT, Michigan, Oct 5, 2006 (AFP) - General Motors Corp chief executive Rick Wagoner will likely face renewed pressure from key investor Kirk Kerkorian to improve GM's fortunes after GM and Renault-Nissan said Wednesday that they had ended talks on a possible alliance.

Kerkorian, a billionaire investor and GM's largest individual shareholder, had proposed such a global alliance in June in a bid to boost GM's ailing operations.

However, he is likely to be disappointed by the announcement that the alliance talks have ended after GM insisted on a hefty cash payment, which it had sought to compensate it as it would have been prevented from entering other joint ventures.

Some observers had, however, suggested that Wagoner was never interested in such a deal with Carlos Ghosn's Renault-Nissan.

Bank of America analyst Ronald Tadross believes recent moves by Kerkorian to increase his GM holdings, through his Tracinda investment group, is likely to prove more significant than a potential tie up.

Although GM's future remains uncertain, what is certain, according to industry analysts is that Kerkorian will continue applying pressure on Wagoner to boost shareholder value.

"We believe Kerkorian is invested in GM for a turn around and will keep pressure on the company to unlock/create shareholder value in any way possible," said Merrill Lynch analyst John Murphy.

Himanshu Patel, an analyst at JP Morgan, said in a note to investors: "We believe there may be some near term pressure on GM stock as investors question Kerkorian's commitment to first holding their present 9.9 percent stake, and secondly increasing their stake to 12 percent."

Kerkorian announced last month that he was seeking to purchase between another six to 12 million GM shares, and also re-affirmed his belief in a potential alliance grouping GM with Renault-Nissan.

The wily investor has made life hard for Wagoner as he has upped his shareholdings in GM and aggressively pushed for an alliance with the French-Japanese car maker.

The GM CEO has made it clear, however, that he is not marching in step to Kerkorian's tune.

Wagoner said last week that the success of GM's recovery plan did not depend on the formation of a global alliance with Renault-Nissan.

GM, which lost 10.6 billion dollars in 2005 and 2.7 billion dollars in the first half of 2006, has been touting the recent success of its restructuring plan.

But Kerkorian has been vying to accelerate GM's return to profitability and succeeded in getting one of his key lieutenants and an automobile industry specialist, Jerry York, a seat on GM's board of directors in February.

He and York have pressured GM to pull out of unprofitable investments, such as the one with Swedish car maker Saab, in recent months.

Kerkorian's push for an alliance with Renault-Nissan sparked calls from some GM board members for Wagoner to accelerate the company's turnaround program.

As if GM needed a further reminder of its troubles, the company said Tuesday that its US sales fell 6.8 percent in September from a year ago, although much of the decline came from the less-profitable rental fleet market.

Although Kerkorian appears to have failed for now in forcing GM to link up with Renault-Nissan, it's clear he will keep applying pressure on Wagoner although it remains to be seen what Kerkorian's next move might be.

GM's shares closed down 10 cents at 33.31 dollars Wednesday despite wider market gains following the announcement that its alliance talks had been abandoned.