GM Names Kerkorian Aide to Its Board
It looks as if billionaire Kirk Kerkorian can cross two things off his General Motors Corp. wish list.
The ailing automaker on Monday elected Kerkorian’s top aide to its board and reportedly adopted his proposal for a 50% cut in its quarterly dividend to conserve cash.
By naming former Chrysler Corp. and IBM Corp. financial executive Jerome York to GM’s board, the automaker is telling Kerkorian -- its largest individual shareholder -- that it is listening to his call for a dramatic restructuring to reverse soaring losses, analysts said.
“I don’t think they will buy the whole program, but York might be able to speed up the process,” said Burnham Securities analyst David Healy.
Last month in Detroit, York urged GM to slash its dividend in half, to impose pay cuts at all levels of the company -- with the most dramatic ones at the top, and to sell off the Saab and possibly the Hummer brands. York criticized GM, which lost $8.6 billion last year, for moving too slowly in its turnaround efforts.
Automotive News reported late Monday that GM would cut its quarterly dividend in half, to 25 cents a share, saving the company $560 million a year. GM spokesman Steve Harris declined to comment on the report.
If GM cuts the dividend, “I can only say, what took so long?” Healy quipped. It would be GM’s first dividend reduction since 1992.
Kerkorian’s Beverly Hills-based investment firm, Tracinda Corp., owns 9.9% of GM.
In a statement Monday, a Tracinda spokeswoman said, “We are pleased Jerry has been added to the board ... and believe he will be a tremendous asset to GM as it works to strengthen its business and create long-term value for all shareholders.”
That is an important goal for Kerkorian. The investor holds 55.4 million GM shares, and the dividend cut he pushed for would cost him about $14 million a quarter.
“But what he loses there he hopes to more than make up for with stock price gains,” Healy said.
GM Chief Executive Rick Wagoner has said that he doesn’t agree with eliminating the Saab and Hummer brands but that several other suggestions from York and Kerkorian seem worthwhile.
By cutting its dividend, GM would signal to its unions and suppliers that they wouldn’t be the only ones to suffer as the company shrinks its North American operations, analysts said.
GM has been losing sales for decades to foreign brands led by Japan’s Toyota Motor Corp. Last year, GM’s market share in the U.S. fell to 26%, from a high of 51% in 1962.
Wagoner’s cost-cutting plan calls for GM to shut a dozen plants and other facilities in the U.S. and Canada, eliminate 30,000 manufacturing jobs by 2008 and renegotiate a healthcare plan with its unions. Wagoner has said those steps will save $7 billion a year.
York, 67, advised Kerkorian in his unsuccessful bid to buy Chrysler Corp. in 1995. York will earn 4% of any profit Kerkorian makes from his GM stake in 2009, according to a filing with the Securities and Exchange Commission.
In a regulatory filing Monday, Tracinda said that York would not share any confidential GM information with Kerkorian or his company.
York replaces E. Stanley O’Neal, chairman of Merrill Lynch & Co., who resigned from GM’s board citing increased demands of the automaker’s meeting schedule. York also serves on the boards of Apple Computer Inc., Tyco International Ltd. and Exide Technologies.
GM shares closed Monday at $23.34, up 19 cents.
