Fiat Chrysler and Renault pursue $35 billion merger to tackle car sector challenges | World Defense

Fiat Chrysler and Renault pursue $35 billion merger to tackle car sector challenges

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Fiat Chrysler and Renault pursue $35 billion merger to tackle car sector challenges
May 27, 2019
Giulio Piovaccari, Laurence Frost

MILAN/PARIS (Reuters) - Fiat Chrysler pitched a finely balanced merger of equals to Renault on Monday to confront 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 (FCA), and could spur more deals.

French group Renault said it was studying the proposal from Italian-American FCA with interest, and considered it friendly.

Shares in both companies jumped more than 10 percent as investors welcomed the potential creation of a company that would produce more than 8.7 million vehicles a year and aim for 5 billion euros ($5.6 billion) in annual savings.

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

But analysts also warned of big complications, including Renault’s existing alliance with Nissan, the French state’s role as Renault’s largest shareholder and potential opposition from politicians and workers to any cutbacks.

“The market will be careful with these synergy numbers as much has been promised before and there isn’t a single merger of equals that has ever succeeded in autos,” Evercore ISI analyst Arndt Ellinghorst said.

With these sensitivities in mind, FCA proposed an all-share merger of equals under a listed Dutch holding company. After a 2.5 billion euro dividend for existing FCA shareholders - giving a big upfront boost to the Agnelli family that controls 29% of FCA - investors in each firm would hold half of the new entity.

The merged group would be chaired by Agnelli family head John Elkann, sources familiar with the talks told Reuters, while Renault chairman Jean-Dominique Senard would likely become CEO.

Italian Deputy Prime Minister Matteo Salvini said the proposed merger could be good news for Italy if it helped FCA to grow, but it was crucial to preserve jobs.

He did not comment on the French government’s 15% stake in Renault, but an influential lawmaker from the ruling League party said Rome may seek a stake in the combined group to balance France’s holding.

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. The Japanese carmaker has yet to comment on FCA’s proposal.

In a letter to employees seen by Reuters, FCA chief executive Mike Manley cautioned a merger with Renault could take more than a year to finalize.

‘BOLD DECISIONS’
A deal could help both companies address some of the shortcomings that have led their market valuations to lag major rivals, as well as the challenges of switching to electric and self-driving technologies and tougher emissions regulations.

FCA has a highly profitable businesses in North America with its RAM trucks and Jeep brand, but lost money last quarter in Europe, where most of its plants are running below 50% capacity and it faces a struggle with new emissions curbs.

Renault, by contrast, was an early mover in electric cars, has relatively fuel-efficient engine technologies and a strong presence in emerging markets, but no U.S. business.

A deal would do little, however, to address both firms’ limited presence in China, the world’s biggest auto market.

FCA said the case for a merger was “strengthened by the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry.”

The huge cost of these changes, including meeting the threats posed by new market entrants such as Tesla in electric cars as well as Uber and Google in self-driving vehicles, has pushed other automakers to work more closely together, including Volkswagen and Ford.

FCA-Renault, like almost every possible automotive pairing, has been studied intermittently for years by dealmakers. But the fractious relations between Ghosn and FCA’s Sergio Marchionne made constructive merger talks impossible before the former CEO’s sudden death last July, banking sources said.

PARIS AND ROME
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. Any deal must safeguard Renault’s alliance with Nissan, which recently rebuffed a merger proposal from its partner, the official added.

Seeking to soothe concerns, FCA stressed “new opportunities for employees of both companies”.

“The benefits of the proposed transaction are not predicated on plant closures, but would be achieved through more capital-efficient investment in common global vehicle platforms, architectures, powertrains and technologies,” it said.

Industry bankers said most of the savings were likely to come from procurement, and FCA in particular would benefit from Renault’s work on electric and self-driving vehicles where it had done little itself. However, they were skeptical the companies could avoid job losses in Europe.

One source familiar with the matter said FCA had proposed to guarantee industrial jobs and existing sites, leaving scope for white-collar and engineering layoffs as well as some plant downsizing.

Appealing to Nissan, which is 43.4%-owned by Renault, FCA said the Japanese carmaker would be invited to nominate a director to the 11-member board of the new company.

As alliance partners, Nissan and its affiliate Mitsubishi would benefit from an estimated 1 billion euros in annual savings from the merger, FCA added.

But analysts said Nissan bro
ught another layer of complexity.

“We now have the French, the Italians, the Japanese and the Americans needing to find consensus on the a board of a Dutch company, where the French state stands to lose its special status,” Ellinghorst said.

“This requires quite a bit of creativity.”

Additional reporting by Pamela Barbaglia, Gilles Guillaume, Sudip Kar-Gupta, Edward Taylor and Norihiko Shirouzu; Editing by Georgina Prodhan, Mark Potter and Alexander Smith


 

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France: No jobs must be lost in Renault-Fiat Chrysler tie-up
28 May 2019

The Fiat Chrysler Automobiles world headquarters is shown in Auburn Hills, Mich., Monday, May 27, 2019. Fiat Chrysler proposed on Monday to merge with France's Renault to create the world's third-biggest automaker, worth $40 billion, and combine forces in the race to make electric and autonomous vehicles. (AP Photo/Paul Sancya)

PARIS (AP) — A merger between Renault and Fiat Chrysler will only happen if French jobs are protected, France’s finance minister said on Tuesday.
Speaking on RTL radio, Bruno le Maire said he has asked for “four guarantees” for the deal to go ahead, including that not a single job or factory on French soil will disappear.

“The first: industrial jobs and industrial sites. I told Renault chairman Jean-Dominique Senard very clearly that it was the first of the guarantees I wanted from him in the opening of these negotiations with Fiat,” le Maire said. “A guarantee on the preservation of industrial jobs and sites in France.”

Fiat Chrysler has proposed to merge with France’s Renault to create the world’s third-biggest automaker, worth $40 billion, and combine forces in the race to make electric and autonomous vehicles. The merged company would produce some 8.7 million vehicles a year, leapfrogging General Motors and trailing only Volkswagen and Toyota.

Le Maire said he also wants the merger to take place within the alliance between Renault and Nissan, that French interests “be well represented” on the board of the new organization, and that the future operation commits to the development of electric batteries in Europe.

He added that if a deal is secured, France’s stake in Renault will go down to 7.5% percent from 15%.

 

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Renault talks with Nissan about Fiat Chrysler merge proposal
By YURI KAGEYAMA
29 May 2019

FILE - In this March 12, 2019, file photo, Renault Chairman Jean-Dominique Senard, left, speaks as Nissan CEO Hiroto Saikawa listens during a joint press conference at the Nissan headquarters in Yokohama, near Tokyo. Fiat Chrysler’s proposal to merge with Renault was presented to Nissan on Wednesday, May 29, adding another big question to the list of uncertainties facing the Japanese automaker. (AP Photo/Eugene Hoshiko, File)

TOKYO (AP) — Fiat Chrysler’s proposal to merge with Renault was presented to Nissan on Wednesday, adding another big question to the list of uncertainties facing the Japanese automaker.

Nissan Motor Co. has been slammed with nose-diving profits and a tarnished reputation since the arrest of its former chairman Carlos Ghosn in November on financial misconduct allegations.

Renault chairman Jean-Dominique Senard was in Tokyo for a board meeting of the three-way alliance among Renault, Nissan and smaller Japanese automaker Mitsubishi Motors Corp.

“There was an open and transparent discussion on FCA’s recent proposal to Groupe Renault. The meeting also discussed and positively concluded several current operational alliance matters,” the Renault-Nissan-Mitsubishi alliance said in a statement, while declining to give details.

A quick resolution had not been expected.

But it’s clear the proposal from Fiat Chrysler Automobiles, which brought together the Italian and American manufacturers, complicates matters at a time when Nissan has plenty of problems.

“It’s really important for Nissan to jockey for an equal position,” to gain bargaining power among the companies, said Katsuya Takeuchi, senior analyst at Mitsubishi UFJ Morgan Stanley Securities.

But that’s extremely difficult when its finances are in deep trouble, weakening its position, and requiring full managerial attention as well as money, Takeuchi said.

Nissan’s profit for the fiscal year ended in March totaled 319.1 billion yen ($2.9 billion), down from 746.9 billion yen the previous fiscal year, its worst showing since the global financial crisis a decade ago. Its profit for the fiscal year through March 2020 is expected to drop to 170 billion yen ($1.5 billion), due to restructuring, rising material costs and other expenses.

“If it had a trump card it could use, it would have used it already,” Takeuchi said of Nissan’s woes.

Until recently, Nissan had been more profitable than Renault. But Renault, which came in to rescue Nissan from the brink of bankruptcy 20 years ago, remains the dominant partner, owning 43% of Nissan.

Ghosn had worked as the charismatic glue of sorts for the alliance. But now he awaits trial.

Ghosn says he is innocent of the charges of falsifying retirement compensation reports and of diverting Nissan money for his investment losses and personal gain. His courtroom fight could take years.

Masayuki Kubota, chief strategist at Rakuten Securities, believes Fiat Chrysler, with its offerings like the Jeep that don’t overlap with Nissan’s lineup, and its strength in the U.S. market, has a lot to offer Nissan, perhaps even more than Renault.

Partnerships are increasingly critical in the intensely competitive globalizing auto industry, according to analysts, delivering cost cuts, market cooperation and auto parts-sharing. Going at it alone is precarious. But that doesn’t mean companies, hailing from differing corporate and social cultures, can get along.

Falk Frey, a senior vice president and auto analyst at Moody’s, said combining Fiat Chrysler and Renault made “strategic sense and could create a substantial amount of synergies,” but warned of “significant execution risks” because of Renault’s alliance with Nissan and Mitsubishi.

Renault’s board will hold a meeting early next week to decide whether to agree to the proposal. Even if the decision is yes, consultations with unions, governments, antitrust authorities and other regulators are expected to take a year.

 
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