Fiat Chrysler Unveils Renault Merger Proposal -- Update

By Sean McLain, Nick Kostovand Eric Sylvers

Fiat Chrysler Automobiles NV is proposing a merger with French rival Renault SA, a move that if completed would shake up the global automotive industry.

Fiat said the proposed combined business would be 50% owned by FCA shareholders and 50% by Groupe 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, Renault said it would consider the proposal at a board meeting Monday.

If Renault and FCA 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 rank as the third-largest auto maker by production, behind Volkswagen AG and Toyota Motor Co. but 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, though, 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 Carlos Ghosn, who forged the alliance between the two.

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.

A far-reaching alliance such as Renault's with Nissan and Mitsubishi could yield more savings, but analysts have said a full merger is the most efficient option, allowing for a single strategy without the diplomacy and compromises of an alliance.

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. 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.

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.

Mergers between rival car makers have a mixed record. Some stumble over clashing corporate cultures or national pride. Failures include Daimler Benz's ill-fated spell as owner of Chrysler. But France's PSA Group, maker of Peugeot, has successfully turned around Opel after buying the perennially money-losing German car maker from General Motors Co.

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.

Should a full merger not come to fruition, Fiat Chrysler could still join the Renault-Nissan-Mitsubishi alliance, people familiar with the matter said.

However, adding a fourth member to the alliance would potentially complicate matters at a time when it is under stress. Renault and Nissan are trying to work out what the alliance will be in the future. Renault tried to propose a merger with Nissan last month, but was rejected. Nissan has said it wants the companies to operate more independently.

People familiar with the matter say Nissan hasn't been involved in the talks between Renault and Fiat Chrysler. It is unclear how executives at the Japanese car maker will react. 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 underperformed.

Write to Sean McLain at sean.mclain@wsj.com

(END) Dow Jones Newswires

May 27, 2019 03:18 ET (07:18 GMT)

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