By Sean McLain, Nick Kostovand Eric Sylvers
Fiat Chrysler Automobiles NV has proposed a merger with French
rival Renault SA, a move that if completed would create the
third-largest auto maker by production and shake the global
automotive industry.
On Monday Fiat Chrysler said the combined business would be 50%
owned by its shareholders and 50% by Renault shareholders with a
"balanced governance structure." The Italian-American car giant,
which in addition to its namesake Fiat, also sells the popular Jeep
and Ram truck brands, said the majority of the board would be
independent. Renault said it would consider the proposal at a board
meeting later in the day.
Shares in both companies rose more than 12% in early European
trading.
If Renault and Fiat Chrysler merge, it would create a car
company with a combined value of about $37 billion and annual
vehicle production of almost nine million passenger cars and light
trucks. Such a combination would only rank behind Volkswagen AG and
Toyota Motor Co. and ahead of General Motors Co. Including
Renault's alliance partners, Nissan Motor Co. and Mitsubishi Motors
Corp., output would swell to around 15 million, far ahead of the
pack.
Complicating any deal is a 20-year-old partnership between
Renault and Nissan, in which they share technology and vehicle
parts. Renault owns 43.4% of Nissan, while Nissan owns 15% of
Renault. The Renault-Nissan relationship has come under strain as
the two sides debate whether to overhaul the cross-shareholding
arrangement and how to make joint decisions on future models and
technologies.
Those differences have been exacerbated by the arrest last year
of auto titan Carlos Ghosn, who forged the alliance. Mr. Ghosn has
been indicted by Tokyo prosecutors on charges including diverting
Nissan money for personal gain. He says he is innocent and was
released on bail last month.
Nissan's CEO Hiroto Saikawa told Japanese media Monday that he
is "open to any forward-looking discussions to strengthen the
alliance." Mr. Saikawa, who declined to say whether he was notified
of the merger proposal, is expected to attend a previously
scheduled meeting with top executives from Renault on Wednesday in
Japan.
There is no guarantee Fiat and Renault will reach an agreement.
They are both considered symbols of national industry in their home
countries, and national pride has often kept car makers across
Europe independent. But as demand slows for new cars, companies are
more closely weighing the advantages of global scale.
Fiat Chrysler said its proposal came after an initial period of
discussions with Renault to identify products and markets where
they could collaborate to better meet the expensive challenge of
electric vehicles, self-driving cars and in-car connectivity. The
discussions made clear that a full merger was the most efficient
option, Fiat Chrysler said.
Fiat Chrysler said the two companies had complementary
strengths. Renault is strong in the low-cost sector with its Dacia
and Lada brands, as well as in the mass-market segment with its
namesake Renault brand. Fiat Chrysler meanwhile sells more trucks
and SUVs and owns the luxury brand Maserati. Geographically, Fiat
Chrysler has a strong presence in the lucrative U.S. market, where
Renault is absent, and has a big business in Latin America. Renault
has a strong presence across Europe, Russia, Africa and the Middle
East.
Before the deal closes, Fiat Chrysler shareholders will also
receive a dividend of EUR2.5 billion ($2.8 billion) to mitigate the
disparity in the market value of the two companies and ensure that
the deal doesn't end up being a takeover of Renault by Fiat
Chrysler and the Agnelli family, its controlling shareholder. On
Friday, Fiat Chrysler had a market value of $20 billion, while
Renault was worth about $17 billion.
Fiat Chrysler said the deal will eventually deliver more than
EUR5 billion in annual combined cost savings, mainly from sharing
vehicle platforms and engineering resources and cooperating in
areas such as R&D. It added that these cost cuts weren't
predicated on plant closures -- a politically charged issue in both
France and Italy where governments have a history of
intervention.
The deal would also result in synergies for Renault's alliance
partners, Fiat Chrysler said, adding that it "sees significant
expected benefits to all parties from the expanded
partnership."
Renault's alliance with Nissan, which Mitsubishi joined later,
was once held up as an example of how to address the high costs of
developing and building new cars, without the perils of a full
merger. Sharing vehicle platforms and engineering resources, and
cooperating in areas such as procurement can help car makers cut
costs.
But Renault and Nissan have been at odds since the arrest last
year of Mr. Ghosn, who was chairman of both companies at the time.
Also, the billions of dollars in savings that alliance members
claim come from synergies have failed to translate into higher
profitability than some of their regional peers.
Renault approached Nissan last month to propose a full blown
merger between the two, but was rebuffed. A merger between Fiat and
Renault would shelve those plans, said a person familiar with the
Fiat-Renault deal.
"Nothing is going to happen on the alliance side for a while,"
the person said. "Nissan has to get its house in order first."
Profit at Nissan is expected to plunge this year as the Japanese
auto maker seeks to overhaul its business in the U.S.
Renault Chairman Jean-Dominique Senard met with French Finance
Minister Bruno Le Maire on Friday and presented the merger plan, a
person familiar with the matter said. The French state, which owns
15% of Renault, isn't opposed to a merger, the person said.
A French official said Paris notified the Japanese government
about a potential deal after learning on Friday that Renault's
board was expected to review it in the coming days.
The French state will evaluate the final proposal with an open
mind, the official said, adding the deal needs to make sense on an
industrial level and have the potential to create a company with
the heft to invest considerable sums in developing electric and
autonomous vehicles.
The official added that the government will be "particularly
vigilant" on how such a deal affects jobs at the auto makers.
People familiar with the matter have said Nissan hasn't been
involved in the talks between Renault and Fiat Chrysler. Analysts
said adding Fiat Chrysler's pickup trucks and Jeep SUVs to the
alliance's operations in the U.S. could compliment Nissan's lineup,
providing it with economies of scale in a market where it has
recently under performed.
Write to Sean McLain at sean.mclain@wsj.com, Nick Kostov at
Nick.Kostov@wsj.com and Eric Sylvers at eric.sylvers@wsj.com
(END) Dow Jones Newswires
May 27, 2019 04:28 ET (08:28 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Fiat Chrysler Automobile... (NYSE:FCAU)
Historical Stock Chart
From Mar 2024 to Apr 2024
Fiat Chrysler Automobile... (NYSE:FCAU)
Historical Stock Chart
From Apr 2023 to Apr 2024