Kerkorian's Next Move After Global Automotive Alliance Talks Collapse

Strategic Insights -

The collapse of talks on a global automotive alliance between General Motors, Nissan, and Renault has left Kirk Kerkorian, the 89-year-old corporate raider, with unclear options. Despite the limited impact on the value of his 9.9 per cent stake in GM, Kerkorian has expressed regret over the impasse, which sets back his plans to shake up the world's biggest carmaker. The tracinda holding company has urged GM's board to obtain an independent evaluation of the proposed partnership, a call that has been made since the alliance idea was first mooted in June.

Key Takeaways:

  • The collapse of the global automotive alliance talks puts Kerkorian in a "tough spot," said John Murphy, analyst at Merrill Lynch, as it hinders his plans to shake up General Motors.
  • Tracinda, Kerkorian's holding company, has expressed regret over the impasse, reiterating that GM's participation in a global alliance with Renault and Nissan would have enabled substantial synergies and cost-savings.
  • Kerkorian and his financial adviser, Jerry York, have sought to pressure GM's management team, including CEO Rick Wagoner, to adopt a change in business strategy, including dropping low-volume models like Hummer and Saab.
  • Despite making progress on some of York's proposals, such as halving GM's dividend and cutting executive pay, Kerkorian and York have faced resistance from Wagoner and his management team.
  • Analysts predict that Kerkorian will not sit still, possibly seeking to increase his stake in GM to around 12 per cent and further ratchet up the pressure on GM's board.
  • Kerkorian's next move could involve replacing some of the board, with Wagoner, the CEO and chairman, being a likely target for change.

Statistics:

  • Kerkorian's stake in GM is 9.9 per cent.
  • GM's dividend has been halved.
  • Executive pay at GM has been cut.
  • GM is due to report third-quarter results on October 25.
  • If GM posts solid progress, it would solidify Wagoner's position.

Sources:

  • "GM rejects alliance bid from Nissan and Renault", The Times.
  • "Kerkorian presses GM to act on alliance idea", The Times.
  • "GM's Talk over Alliance with Renault and Nissan Collapsed as no Deal", Bloomberg.
  • "Third-Quarter Earnings Results", Reuters.