General Motors, Renault and Nissan said in a brief official statement issued by both automakers on Wednesday night that they had agreed to terminate discussions regarding a proposed alliance among the three companies.
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“The parties mutually recognised that significant aggregate synergies might result from the alliance. However the parties did not agree on either the total amount of aggregate synergies or the distribution of those benefits.
“Based on its conclusions, GM had proposed that Renault-Nissan provide compensation as part of a potential alliance and for potentially precluding GM from entering other alliance opportunities if Renault-Nissan had made a significant investment in GM.
“Renault and Nissan consider that the principle of compensation is contrary to the spirit of any successful alliance,” the two firms said.
At a press conference at global headquarters at the Renaissance Centre in Detroit, General Motors chairman and CEO Rick Wagoner said the agreement to terminate discussions on the three-way alliance “follows a unanimous decision by our board of directors that the structure of the proposed alliance would not be in the best interests of GM and its stockholders.”
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By GlobalData“There was a great spirit of cooperation, and attitudes were very constructive. The teams worked hard to agree on a process to evaluate synergies and to get the best data,” he said.
“There was consensus on what specific initiatives could yield highest value, and those projects were jointly evaluated.
“In almost all cases, the teams were in agreement over the evaluation of the potential synergies, and very importantly, the relative distribution of those synergies among the three parties.
“We differed in one area on the valuation of the synergies…but even in that area, we agreed on the relative distribution of the synergies.
“As it turned out, we all agreed that the synergy levels were significantly in favour of Renault and Nissan. On Monday evening and Tuesday, we had the opportunity to review the synergy study in detail with the GM board, as well as other key aspects of the Renault-Nissan alliance model.
“In addition to the synergy projects, under the Renault-Nissan alliance model they would acquire a substantial block of GM common stock at market price, along with preferential rights that could preclude GM from entering into other automotive alliances.
“Renault-Nissan made it clear they would not pay any market premium, nor compensate GM to balance the disproportionate impact of expected synergies, nor for potentially precluding other alliances.
“They offered us the right to acquire stock in their companies, as well.
“In the end, following a comprehensive review and discussion, the GM board determined that the alliance structure proposed by Renault-Nissan was not in the best interests of our stockholders.
“This vote was unanimous and followed a comprehensive process that included advice from outside financial advisors.
“The board rejected the proposed alliance taking into consideration its impact on stockholder value, especially in three areas:
– No premium to recognise Renault-Nissan’s disproportionate share of the synergies;
– No premium for the purchase of a significant minority stake in our company;
-And the fact that the proposed structure effectively would have blocked GM from pursuing other alliances, without adequate compensation.
“In addition, our board did not feel that using GM’s available funding to invest in Renault or Nissan shares was appropriate at this time.
“And finally, it’s fair to say that the proposed broad-based alliance model would represent a significant change in the way we are running our business. It would have potentially been a distraction to our current turnaround efforts.
“For example, it unfortunately doesn’t help in key areas like our huge US legacy cost competitive disadvantage, and it could impede our fast-moving efforts to evolve to a global management system.
“We felt that the complexities of working with three companies could, in fact, slow us down. And, there was also concern about the skewed distribution of the synergies potentially providing significant advantage to an important competitor.”
Wagoner stressed that the GM board was involved in this process from the start, and reached its conclusion based on the analysis and recommendation of GM management, and with advice on the proposal from outside financial advisors, Goldman, Sachs and Morgan Stanley.
“We did advise Renault-Nissan that we were very open to the idea of further exploring, and eventually implementing, individual synergy projects that are mutually beneficial. At this point, our understanding is that we will not be proceeding on this basis,” Wagoner said.
“We remain open to working together with other OEMs on projects that add value to our business and our stockholders.”
US trade newspaper Automotive News reported that the GM board vote included one by Jerry York, who is billionaire GM shareholder Kirk Kerkorian’s representative – it was Kerkorian who had pressured GM to enter the alliance, the paper said, citing a “source familiar with the situation”.
Tracinda, the investment firm representing billionaire Kerkorian, told Automotive News: “We believe that General Motors’ participation in a global alliance with Renault-Nissan would have enabled GM to realise substantial synergies and cost savings. We regret that the board did not obtain its own independent evaluation of the alliance.”
Nissan North America spokeswoman Frederique Le Greves told the paper: “They wanted compensation for the alliance. This is really not part of the alliance principle. It’s a willingness to work together.”
In a likely effort to keep York and Kerkorian further at bay, the GM board also adopted a number of anti-takeover provisions last Tuesday, 3 October, Automotive News said.
Nissan North America senior vice president for administration and finance Dominique Thormann told the Associated Press (AP) all the companies stood to gain, though he acknowledged that “it didn’t exactly land 50-50”.
But he said compensation would defeat the purpose of an alliance and added that quantifying the exact worth of the alliance to each company would be impossible.
Thormann told AP that having each company hold a significant stake in the other companies – as the Renault-Nissan alliance is structured – was important in order to “cement” the relationship and ensure that each partner has an interest in the success of the others.
Forbes magazine speculated that Renault-Nissan alliance chief Carlos Ghosn may now turn to Ford for similar alliance discussions as held with GM. The magazine noted that Ford chairman Bill Ford has previously approached Ghosn but suggested that new ex-Boeing CEO Alan Mulally would probably want to thoroughly review the automaker’s operations before any talks start.
