D-Day No 1

It’s Friday (for you guys anyway, we’re 20 minutes into Saturday here), and that means GM-board-meeting-teleconference-day. GM’s top brass will gather together and hash out their response to Tracinda’s idea of bringing the company into an alliance with Renault/Nissan.

I fully expect that news of the outcome will be forthcoming whilst I’m asleep, so I’m left with the job of predicting the outcome. Anyone who wants to score my predictions can do so in comments.

Therefore, based on various readings over the last few days:

1. GM’s board will have little choice but fulfill their responsibility to shareholders and investigate the merits of the proposal. They’ll come out of the meeting with one united voice that says we’ll look into it but we ain’t saying jack about anything else.

2. Behind that united voice will be the voice of Rick Wagoner telling Kerkorian, York and Ghosn to get the hell out of Dodge.

The outcome of that investigation into the merits of the proposal will be something like “we’ve but costs by doing this, this and this, and we’re making inroads here, here and here, and there’s nothing in this proposal that benefits GM in any material way.”

They’re my main predictions, though I have another one about a GM-hired hitman with a photo of an octogenerian in his pocket…..

Can’t wait to see how it turns out. If they can get over this hurdle then they’ve just got that pesky bankruptcy thing to brush off and everything will be fine. Perhaps they might even get around to selling a few cars. Saabs even!

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2 Comments

  1. Well on the surface there may be much ado about nothing, but you can bet behind the scenes activity is fast and furious.

    GM has a fiduciary obligation to maximize shareholder value. I think we all know that this proposed alliance is a smoke-screen for whatever mayhem Kerkorian wants to commit, but GM is legally bound to explore it and make a recommendation to the board and perhaps ultimately to the shareholders (if it turns out like the Daimler-Chrysler scenario).

    GM is legally a lot better off if it can say “we listened to the offer, we studied it, and we think it is a bad idea for the following reasons” than if it simply stiff-arms Kerkorian right off the bat (as much as he might richly deserve such treatment).

    The dilemma that GM management has is that the Board, acutely aware that they might be sued in their individual capacities by Kerkorian if they turn him down flat (for failing to maximize the value of its shares — and in particular, the value of Kerkorian’s shares), will try and split the baby with some sort of Solomonic solution that gets Kerkorian’s people into the management suite. At best this is a major distraction, and worst it would be the leading edge of a management coup.

    The distressing legal fiction which permits all of this to go on is the idea that Kerkorian’s financial interests are the same as any other shareholder — when in fact his actions demonstrate a real conflict of interest in terms of what he wants out of his stake in GM versus the interests of other shareholders. I personally think that the law needs to be adjusted so that minority shareholders cannot play these kind of short-term arbitrage games, or at least that they should have to meet a higher burden of proof before being allowed to distract/drag management down like this.

    We’re not goung to know who wins this showdown for a few weeks at least. I think that time is on GM’s side — the longer this proposal is out there, the longer people will realize that there’s no real benefit to anyone — other than Kerkorian. If I were on GM’s management team I would try and kill this with due process, tie it up in red tape, and delay giving an answer for as long as possible.

    That also buys some time for management to find a white knight investor to come in on their side as well.

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