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Is GM On The Road To A Board Fight?


Given his reputation for investor activism, you'd think Kirk Kerkorian might have gone to the mat with General Motors Corp. (GM) by now. Yet having amassed the fourth-biggest stake in GM -- and lost nearly a half-billion dollars -- Kerkorian, 88, has limited himself mostly to chatting up management and a few directors. And he has relied on his trusted lieutenant Jerome B. York to suggest, with almost gentlemanly restraint, that GM move faster as it makes itself over.

Even when York took a harder line during a Jan. 10 speech on the sidelines of the Detroit International Auto Show, it wasn't the fire-and-brimstone address analysts had been waiting for. York suggested GM should consider axing brands, cutting the dividend, and whacking everyone's pay. But the stock barely budged.

That raises the question: How serious is Kerkorian about forcing GM to follow his script? Will he wage a proxy fight to get control of the board? York told BusinessWeek that GM must take the steps he has outlined to execute a successful turnaround. He plans to talk to management in civil terms to start with -- Kerkorian's m.o. before attempting a hostile takeover of Chrysler Corp. in the '90s. But York, who has until Feb. 6 to file a proxy ballot, won't rule out more aggressive action or even a proxy battle. "I hope it doesn't get tense," he says. "But we're reviewing all our options."

So far, relations between Kerkorian and GM have been cordial. "I always listen to a billionaire," says Chief Financial Officer Frederick A. "Fritz" Henderson. And in his speech, York offered an olive branch: Kerkorian would buy another 24 million shares if the auto maker acts on his prescriptions.

BACK TO GOALS

But, in truth, the two sides disagree more than they concur. York says GM may need to sell money-making Hummer and money-losing Saab as a way to raise cash and re-size the company to match its 26% market share. That's unlikely, say GM executives, since both brands attract affluent buyers. Another area of contention: GM's $2-a-share dividend, which costs $1.1 billion a year. Chairman and Chief Executive G. Richard Wagoner Jr. has refused to cut the dividend, saying it's the board's decision. And doing so could wreak havoc on GM's stock, which, at about $22, is down 42% over the last month.

York also wants GM to set solid financial goals, something the carmaker stopped doing early last year when it became clear that huge losses were coming. Wagoner has considered giving investors a clearer picture but not until GM has sold a controlling stake in General Motors Acceptance Corp., its financing arm, and helped pay to restructure its former parts unit, Delphi Corp. (DPHIQ), now in bankruptcy.

Kerkorian built a stake for four years at Chrysler before taking action, but most analysts believe he'll move against GM soon. So what will he do? His first option is the most peaceable -- getting York on the board to influence management. He doesn't need to file a proxy to do that. But if Kerkorian feels GM is ignoring his advice, he could file a proxy ballot nominating several board members. Trying to replace the entire board is unlikely, says Charles M. Elson, director of Weinberg Center for Corporate Governance at the University of Delaware: "The question [then would] become whether Kerkorian can run a car company."

Much will depend on how much support Kerkorian can get from other big shareholders. So far none will say if they would be willing to back him should a proxy battle erupt, but analysts contend that he could probably garner enough support to get some like-minded directors on the board. "GM has historically been a slow mover that has not had to deal with an outspoken, large shareholder," says Brian Ropp, a credit analyst with T. Rowe Price Group (TROW), which owns 4.3 million GM shares. So far, Wagoner & Co. seem disinclined to take Kerkorian and York's advice.

Corrections and Clarifications

"Is GM on the road to a board fight?" (News: Analysis & Commentary, Jan. 23) incorrectly stated that General Motors' stock price has fallen 42% in the past month. At the time the story was published, the stock price had fallen 42% in the past year.

By David Welch, with Roben Farzad in New York


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