NSANY Nissan Motor Company Ltd (PK)

As Renault considers Fiat Chrysler overture, Japanese auto maker may lose influence

By Sean McLain in Tokyo and Nick Kostov in Paris 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 29, 2019).

A proposed merger between Renault SA and Fiat Chrysler Automobiles NV poses risks for Nissan Motor Co.: the Japanese auto maker could lose influence in its two-decade alliance with Renault or get dropped altogether.

There is also potential upside. If the merger happens, Nissan would be part of a broader alliance with the possible benefit of cheaper parts and a deeper pool of technology and research dollars to tap. That heft could help it compete against traditional rivals -- and increasingly Silicon Valley -- in the industry-bending development of electric cars, autonomous driving, car sharing and car connectivity.

Nissan Chief Executive Hiroto Saikawa on Monday called a Fiat Chrysler tie-up "something positive," but he also said his company would defend its rights within the existing alliance that also includes Mitsubishi Motors Corp.

Renault, which has yet to give its verdict on Fiat Chrysler's proposed 50-50 merger, has signaled it is mindful of its two Japanese partners.

Renault Chairman Jean-Dominique Senard, upon landing in Tokyo on Tuesday for a previously scheduled meeting with Nissan, said "recent events are very good for the alliance, and I will make sure that Nissan and Mitsubishi take full advantage of the news."

The team of Renault, Nissan and Mitsubishi has been in turmoil since November's surprise arrest of Carlos Ghosn, the former chairman of all three companies. The detention brought long-simmering tensions between Renault and Nissan to a boil, with each side questioning the other's motivations amid probes into the ousted executive.

Though both sides say they are committed to the alliance, they have at times viewed each other suspiciously, fearful of being relegated to junior-partner status. In recent years, Nissan executives have often balked at what they see as a cross-shareholding arrangement that favors the French auto maker.

Mergers are also a touchy subject at Nissan. As previously reported by The Wall Street Journal, Mr. Ghosn tried to spur the Japanese car maker into one with Renault last year. The former chairman now faces up to 15 years in prison on multiple charges of financial crimes in Japan following an investigation instigated by a group of Nissan executives concerned about merger plans. Mr. Ghosn denies wrongdoing.

His successor, Mr. Senard, revisited the idea of a merger with Nissan a month ago, only to be swiftly rebuffed, according to people familiar with the events. Renault has given up pushing Nissan, but would be open to an even bigger deal involving Nissan if the Japanese car maker changed its mind, said people familiar with the proposed Fiat Chrysler-Renault deal.

"There is a possibility of Nissan entering into a three-way deal. If Nissan wants it, it's open. Nobody is going to push them to do anything for obvious reasons," said one of these people.

Some at Nissan, while opposing a merger, hope a Renault deal with Fiat Chrysler, if it comes to pass, would ease the pressure on Nissan to integrate its operations further with Renault. Some in the senior management have grown skeptical of the long-term benefits of the alliance with the French auto maker, say people familiar with their thinking. But few want to see the pact end abruptly.

Some analysts say Renault could choose to end its alliance with Nissan. "We see stronger synergies for Renault with [Fiat Chrysler] than it ever had with Nissan -- and a far better cultural fit too," Max Warburton, an auto analyst at Bernstein Research, wrote in a note to clients Monday. "We believe it may be inevitable that Renault eventually exits Nissan."

A breakup would be difficult, given how deeply entwined their businesses became under Mr. Ghosn's leadership. The two auto makers share human resources and IT departments. An alliance-wide organization procures parts and services, and many Nissan vehicles are assembled at Renault plants. The two also share development costs on everything from engines to electric vehicles.

The alliance's cross shareholdings -- a source of tension -- stand to change if Fiat Chrysler and Renault were to merge.

Renault's currently has a 43.3% controlling stake in Nissan, while Nissan owns a 15% nonvoting stake in Renault. The French government holds just over 15% of Renault, with special voting powers granted under French law.

Nissan and Renault revised their shareholding agreement in 2015, limiting Renault's ability to exercise its voting rights at Nissan -- a measure designed to ensure the Japanese auto maker wasn't subject to diktats from the French state.

Fiat Chrysler is proposing a deal that would reduce the French government's stake in Renault to around 7.5%, with Paris losing its special voting powers. Nissan's stake in Renault could also decrease to 7.5%, potentially eroding the safeguards for its independence set up in the 2015 agreement.

Under the current arrangement, Nissan can raise its stake in Renault to 25% -- allowing it to cancel out Renault's voting rights in Nissan under Japanese law -- if it were determined that the French company had interfered in management issues. That safeguard would be less effective if Nissan's starting point were just 7.5% ownership.

Negotiators poised to hammer out a deal between Renault and Fiat Chrysler say they hope Nissan can be brought to the table.

"If a global framework can be put in place that respects the constraints of all the different actors, then you've created the undisputed leader of the auto sector with 15.6 million vehicles," said one person working on the deal.

"We're not going to push them into anything. If it stays the way it is forever that's still good," another person working on the deal said. "Our view is let's be very pragmatic. The Japanese need a bit of time."

--Chieko Tsuneoka in Tokyo contributed to this article.

Write to Sean McLain at sean.mclain@wsj.com and Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

May 29, 2019 02:47 ET (06:47 GMT)

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