Billionaire investor Kirk Kerkorian shelved plans to raise his stake in General Motors Corp. and his aide quit the company's board Friday two days after the automaker terminated talks about a three-way alliance with Renault and Nissan.
Jerome York, an adviser to Kerkorian, said there was "little point" in remaining on the board, adding that he had “grave reservations” about GM’s ability to compete with Asian rivals.
Kerkorian, the billionaire investor who owns a 9.9 percent stake in the company, has been pushing for more changes at GM. The company has said its own restructuring program, which includes job and plant cuts, is starting to show results.
GM shares tumbled on the news, shaving nearly $1.2 billion off the company’s value and about $116 million off Kerkorian’s stake.
Kerkorian, who promoted the idea of GM joining Renault SA and Nissan Motor Co. in a broad alliance, had told the Securities and Exchange Commission last week that he was considering increasing his stake in GM to as much as 12 percent.
In a filing with the SEC on Friday, Kerkorian’s Tracinda Corp. said it no longer planned to acquire those shares. But it said it would continue to review its investment in GM and may dispose of or acquire more shares in the future.
In the resignation letter, which was obtained by wire services, York acknowledged progress GM had made in cost-cutting and in taking other steps that he said had ”greatly” reduced “the risk of near-term bankruptcy.”
But he criticized “an environment in the board room” that made it hard to challenge management, and he raised doubts about the automaker’s longer-term outlook.
“I have grave reservations concerning the ability of the company’s current business model to successfully compete in the marketplace with those of the Asian producers,” York said in the letter to GM lead director George Fisher.
GM confirmed York’s resignation and issued a statement defending its restructuring progress.
“We remain focused on our North America turnaround, where we are making real progress, progress that is well ahead of what some skeptics thought possible,” the company said.
GM, Nissan and Renault announced Wednesday that they were ending their alliance talks. GM Chief Executive Rick Wagoner said the company believed it would benefit from the proposed linkup far less than Nissan and Renault, which already are joined in an existing alliance. GM wanted the other companies to compensate it for that imbalance, but Renault-Nissan said that demand contradicted the spirit of an alliance.
Wagoner said GM’s board voted unanimously on Tuesday to end the talks, meaning York also voted against the alliance. But Tracinda said it was disappointed by GM’s decision.
GM on Friday again stressed that the board’s decision was unanimous.
“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,” the company said.
But York maintained that the board should have sought its own evaluation.
“The right thing to have done here — from a governance perspective if not a legal perspective — would have been for the board to have hired its own independent advisors, who in turn, could have designed the study process to more fully get at particularly the potential procurement savings,” he wrote in the letter to Fisher.
Fitch Ratings managing director Mark Oline said the action by Tracinda “potentially frees up Jerry York and Kirk Kerkorian to agitate more from the outside.”
Other analysts agreed Kerkorian could now be looking at other ways to influence GM’s turnaround strategy, or considering his own exit strategy from a $1.7 billion investment that is close to break-even.
“That means we are either lining up for a proxy fight, or he is going to sell the rest of his 56 million shares,” said Kevin Tynan, analyst with Argus Research.
