GM kicked by biggest investor
Kerkorian adviser quits board, citing 'grave reservations' about company's ability to compete; stock takes a beating.
NEW YORK (CNNMoney.com) -- Jerry York, the adviser to Kirk Kerkorian who is seen as speaking for General Motors's largest individual shareholder, resigned from GM's board Friday, saying the world's No. 1 automaker has not done enough to change its competitive position and criticizing the board room's "environment."
Kerkorian, who owns almost 10 percent of GM (Charts)'s shares, said in an SEC filing he will not go forward with his plans to buy up to another 2 percent of the company, citing York's departure and the company's decision to pull the plug on talks about joining an alliance with Nissan (Charts) and Renault.
Kerkorian and York had been among the leading advocates of such an alliance.
Sharp attack on boardroom practices
York said in a letter to GM that his decision to leave the board is not directly due to GM pulling out of those talks. But he criticizes the way that negotiations were handled with Nissan and Renault.
"The combination of these various factors - ongoing market share pressures and negative cash flow, and all parties' mutual objective of shareholder value creation - was what lead me to propose that the company pursue alliance studies with Renault-Nissan," said York's letter. "And while from a narrow legal perspective, the company may have properly conducted its assessment of the potential benefits of the alliance...there was certainly not a "meeting of the minds" regarding my views as to how the study was conducted."
And he was harsh in his assessment of the company's outlook.
"I have grave reservations concerning the ability of the company's current business model to successfully compete with those of Asian producers," he wrote. "The overriding issue remains that of North American market share decline, which while seemingly having been attenuated somewhat over the past few months as we move through the 'sweet spot' in our product renewal cycle, may also be a function of heavier sales incentive spending."
York did say that the chance of near-term bankruptcy at GM has been significantly reduced, although he said the cooperation of the United Auto Workers and the sale of 51 percent of the GMAC finance unit deserve much of the credit for reducing that threat.
And he complained about directors not getting materials for their consideration until right before board meetings, adding that the main reason he's quitting the board is "I have not found an environment in the board room that is very receptive to probing beyond the materials provided by management."
GM issued a statement that did not comment on the criticism in York's letter, or directly comment on Kerkorian dropping plans to buy additional shares.
It repeated arguments given Wednesday when it announced the end of the Nissan-Renault talks that such an alliance would not have been an advantage for GM or its shareholders.
"It's appropriate to note that the decision to end the equity alliance discussions was unanimously approved by the GM Board, which consists of 12 directors, 11 of whom are independent of management," said the GM statement. "This decision was made after a comprehensive process that included joint synergy evaluation by the management of all three companies and receipt of advice on the proposal by two prominent financial advisers."
GM saw its shares dropped 8 percent soon after the Kerkorian filing before recouping some of the losses in early-afternoon trading, only to drop again as the criticisms in York's letter became known. It ended the day down $2.08, or 6 percent, at $31.05. GM shares had been slightly up for the day before the filing.
The sell-off in the shares of Dow component GM derailed the chances of the Dow Jones industrial average setting its fourth straight record high close.
Kerkorian, formerly the lead shareholder in Chrysler when it was purchased by Daimler-Benz to form DaimlerChrysler (Charts), was the one who pushed GM to pursue an alliance with Renault and Nissan. The companies announced Wednesday they had broken off the talks because Nissan and Renault were unwilling to pay to have GM join their existing alliance.
Kerkorian's filing did not directly comment on his reason to no longer pursue additional GM shares, although the filing said that "General Motors abruptly announced the termination of discussions regarding its proposed alliance with Renault and Nissan prior to the expiration of the time period originally established for the initial evaluation of the alliance and without the General Motors Board of Directors obtaining an independent evaluation of the alliance."
GM CEO Rick Wagoner said at his press conference Wednesday that the board had voted unanimously that the structure of the proposed alliance with Nissan-Renault would not be in the best interest of GM or its shareholders. Wagoner declined to say anything further about York's or Kerkorian's view about the end of the discussions.
York, a former Chrysler executive, joined the GM board in February. In January, he gave a speech at the Detroit auto show in which he argued the company needed to be in "crisis mode" and that GM should take steps such as cutting the dividend and pay for directors and top executives as a way of winning new concessions from the United Auto Workers union. He also recommended it drop some of its smaller brands.
GM subsequently followed his advice on cutting the dividend and pay for directors and top executives, but it has declined to drop any brands. And it has yet to win any additional pay cuts from the union, although about 35,000 employees represented by the UAW took buyout and retirement incentives to leave the company.
Kerkorian had only disclosed his intention to buy additional GM shares last week, saying in the filing at the time that he still saw promise in the alliance. He expressed disappointment Wednesday when the talks were halted.
His filing Friday did not spell out what he would do with his existing stake in GM, saying only that he will continue to review the investment and, based on a wide variety of considerations, including GM's share price and financial condition, that he might decide "to acquire or dispose of additional shares."
Carlos Ghosn, CEO of both Nissan and Renault, has said he'd like to find a North American partner, although many experts believe it's unlikely that Ford Motor (Charts) would enter into talks in the near term after naming a new CEO last month.