Would a big deal save GM?

By Robert Walberg

You have to give Kirk Kerkorian credit -- he is doing what he can to maximize shareholder value at General Motors (GM, news, msgs). Tracinda Corp., Kerkorian’s investment company, is now advising GM management to “immediately and fully explore” a potential partnership with Nissan Motor (NSANY, news, msgs) and Renault in which those companies would buy a material minority interest in GM.

The market responded by bidding GM stock up nearly 8%. GM broke above the $30 level for the first time since October of last year. Year-to-date, the auto maker’s stock is now up by an eye-opening 49%.

The question is why Nissan and Renault would want to partner with the struggling GM. According to the letter sent by Tracinda, the Renault/Nissan partnership is interested in possibly forming a three-way alliance. However, it’s difficult to imagine why they would have an interest in GM given its ongoing sales and financial troubles.

A new job for Ghosn?

Supposedly the combination would result in additional synergies and cost savings, similar to those enjoyed by the Renault/Nissan partnership when it first formed several years ago. The combination would also create a geographical powerhouse. Finally, the deal could speed up the replacement of Mr. Wagoner as GM’s CEO. Mr. Ghosn, the CEO of both Renault and Nissan is generally considered the top turnaround artist in the auto business today. It’s not difficult to imagine a scenario in which he gradually -- or better yet, quickly -- would emerge as the new head of GM as well.

These are the reasons such a deal makes sense. Nevertheless, it’s hard to build a compelling case for Renault and Nissan wanting to add GM to the mix. As noted in this column just the other day, GM is faced with a number of long-term difficulties. Not least of which are declining sales and a bloated product mix.

Maybe Mr. Ghosn thinks he can do for a struggling GM what he did for Nissan -- a company that has enjoyed a remarkable turnaround over the past five years. But the corporate cultures are considerably different and turning around an old, bloated, stagnant company like GM would be a much bigger challenge.

GM’s miserable credit rating and deteriorating financials are additional roadblocks to any such deal. Maybe Kerkorian can convince Renault/Nissan to take the plunge. Heck, maybe the minority stake he is encouraging them to buy is his own 10% of the company. Now that would be a smooth exit.

But the chances of such a deal coming together are relatively small. Look for today’s euphoria to subside a bit and for GM’s stock to level off. Even so, the mere hope of such a deal will keep a tight floor under the stock over the short-term. The market will also reward the stock with an unnaturally high multiple relative to earnings, based on Kerkorian's ongoing efforts to bolster shareholder value.