Renault to decide by next week whether to proceed with Fiat Chrysler merger talks

Reuters, Bloomberg, JIJI

Renault SA’s board will hold informal work sessions within days and likely decide next week whether to enter an agreement with Fiat Chrysler Automobiles NV to proceed with merger talks, two sources said.

On Monday, FCA pitched a finely balanced merger of equals to Renault to tackle the costs of far-reaching technological and regulatory changes by creating the world’s third-biggest automaker.

If it goes ahead, the $35 billion-plus tie-up would alter the landscape for rivals including General Motors and Peugeot maker PSA Group, which recently held inconclusive talks with Fiat Chrysler, and could spur more deals.

Renault said it is studying the proposal from Italian-American FCA with interest, and considers it friendly.

Shares in both companies jumped more than 10 percent Monday as investors welcomed the prospect of an enlarged business capable of producing more than 8.7 million vehicles a year and aiming for €5 billion ($5.6 billion) in annual savings.

It would rank third in the global auto industry behind Toyota Motor Corp. and Germany’s Volkswagen AG.

The carmakers are moving ahead without Renault’s 20-year partner, Nissan Motor Co., and Mitsubishi Motors Corp., the other member of their troubled alliance. Fiat has conditioned the merger talks on Renault agreeing not to pursue a transaction with Nissan in the short term, according to sources familiar with the matter. The Japanese company would be welcome to join the merged entity later.

Nissan Chief Executive Officer Hiroto Saikawa late Monday welcomed a possible merger between the two carmakers, saying it is “positive news for the future as a whole because it provides greater opportunities.”

“It would be good for the scope of the alliance to widen,” he said in Tokyo, referring to Nissan’s current partnership with Renault and Mitsubishi Motors.

He said Nissan wants to discuss the matter with Renault and Mitsubishi. Top executives of the three automakers are scheduled to meet Wednesday in Japan.

FCA proposed an all-share merger under a listed Dutch holding company. After a €2.5 billion dividend for existing FCA shareholders — giving a big upfront boost to the Agnelli family that controls 29 percent of FCA — investors in each firm would hold half of the new entity.

The merged group would be chaired by Agnelli family scion John Elkann, sources familiar with the talks said, while Renault Chairman Jean-Dominique Senard would likely become CEO.

Italian Deputy Prime Minister Matteo Salvini welcomed the merger proposal but said Rome may need to acquire a stake, balancing France’s 15 percent holding in Renault— which is set to be diluted to 7.5 percent of the combined group.

A deal could also have profound repercussions for Renault’s 20-year-old alliance with Nissan, already weakened by the crisis surrounding the arrest and ouster of former Chairman Carlos Ghosn late last year.

In a letter to employees, FCA Chief Executive Mike Manley cautioned that a merger with Renault could take more than a year to finalize.

A deal could help both companies address some of the shortcomings that have led their market valuations to lag behind major rivals, as well as the shift to electric and self-driving technologies amid tightening emissions regulations.

The French government, Renault’s biggest shareholder, supports a merger with FCA in principle but will need to see more details, its main spokeswoman said.

France will be “particularly vigilant regarding employment and industrial footprint,” another Paris official said, adding any deal must safeguard Renault’s alliance with Nissan, which recently rebuffed a merger proposal from its partner.

Seeking to soothe concerns, FCA said the deal plans “are not predicated on plant closures but would be achieved through more capital-efficient investment.”

The carmakers have given commitments to maintain industrial jobs and sites, one source said — leaving room for white-collar and engineering layoffs as well as some plant downsizing.

Appealing to Nissan, which is 43.4 percent owned by Renault, FCA said the Japanese carmaker would nominate a director to the 11-member board of the new company. Nissan and affiliate Mitsubishi would also benefit from €1 billion in cost and investment savings, it said.