Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Friday, July 21, 2006

A merger between GM & Ford, Is it possible?

By Yaser Anwas, CSC of Equity Investment Ideas

At least WSJ thinks so. As GM tries to ail itself by trying to work something out with Nissan & Renault, an article in the WSJ says GM should look no further than Detroit itself. But with another dissappointment in Ford's results, the losses have become staggering.

The WSJ has reported that Ford alone dropped $797 million (pre-tax) in North American operations for Q2 2006 alone, leaving the company with more than $1 billion in total losses for the region so far this year. And earlier in the year, the carmaker announced it would slash its quarterly dividend in half, while reducing compensation for board members.

This merger could raise some complex issues, such as anti-trust. A GM & Ford alliance would be in a much stronger position to tackle legacy costs in bargaining with unions, suppliers, health-care providers, dealers and the government than they presently are today as fierce rivals," according to the article.

WSJ goes on to say that such a union would provide unimaginable savings for the two, dwarfing anything the Nissan-Renault marriage could ever produce.

"If a merged GM-Ford reduced costs equal to 2% of sales - one common M&A benchmark - the capitalized value of the savings could be some $40 billion - well above their $30 billion of combined market cap today."

With speculation that GM board doesn't want a piece of Nissan & Renault, especially Rick Wagoner, a GM-Ford merger could be a last resort & Rick & Bill Jr's trump card.

Powered by Blogger