The Italian automaker wants to consolidate its business with Euro-automotive giant Renault.
While Nissan continues to rebuff Renault’s advances for a merger, it seems the French automaker has found a new business suitor.
Renault finds a new partner in Fiat Chrysler
Fiat Chrysler Automobiles (FCA) just announced that it is proposing a $36.5 billion all-share merger with Groupe Renault. According to the Associated Press (AP), the two companies have been in discussions for weeks.
The deal proposes a 50-50 split in ownership between the two companies’ shareholders.
If the merger goes through, the alliance would create the 3rd largest global automaker with a total of 8.7m vehicle sales. The combined company would be #4 in North America, #2 in EMEA and #1 in Latin America.
Based on 2018 financial results, the combined company’s annual revenues would be nearly €170 billion ($190.3 billion) with operating profit of more than €10 billion ($11.2 billion) and net profit of more than €8 billion ($8.96 billion).
Today, FCA shares opened 18% higher (€13.52/$15.14) than they were when trading closed on Friday (€11.46/$12.83). Renault saw its stock rise 16.2% during the same period, from €49.98/$55.96 to €58.10/$65.05.
What’s the reasoning behind this proposal?
The merger aims to consolidate resources to cut costs for both companies in a struggling global market. However, the merger is “not predicated on plant closures, but would be achieved through more capital efficient investment in common global vehicle platforms, architectures, powertrains and technologies,” the FCA’s announcement confirmed.
Besides costs, new tech lies at the heart of this merger, with Fiat Chrysler justifying the combination with the opportunity for achieving greater advances in automotive connectivity, electrification and autonomous driving as one company, than as two.
FCA touted Groupe Renault’s strong presence across Europe, Russia, Africa and Middle East, which is complemented by FCA’s strong position in high margin segments in North America. It also said it is a market leader in Latin America.
“FCA’s evolving capability in autonomous driving, which includes partnerships with Waymo, BMW and Aptiv, is complemented by Groupe Renault’s decade of experience in EV technology where it is the highest selling EV OEM (original equipment manufacturer) in Europe,” the announcement said.
FCA stated that the merger will deliver an estimated excess of $5.6 billion in annual savings.
The Italian company estimates based on its experience, that approximately 90% of synergies would come from purchasing savings (approx. 40%), R&D efficiencies (approx. 30%), and manufacturing and tooling efficiencies (approx. 20%).
What will this mean for the Nissan-Renault-Mitsubishi Alliance?
The FCA’s proposal raises concerns regarding the future of the three-member alliance.
“For Renault, the partnership with FCA renews speculation the French automaker’s alliance with Japan-based Nissan may not last,” CNBC opined.
According to ousted Nissan chairman Carlos Ghosn, who is under house arrest and being investigated for financial wrongdoing, some executives at Nissan are against a tighter merger with Renault. He insinuated in a video to the press that this was the reason behind his arrest: an attempt to curb a Nissan-Renault merger that would reduce the Japanese company’s autonomy, something he was highly encouraging.
Renault owns 43% of Nissan, while Nissan owns only 15% of Renault. Incidentally, the French government has a significant 15% stake in Renault.
“The [FCA-Renault] deal would reduce the French government’s stake and influence in Renault, one of the country’s cherished businesses, because Fiat Chrysler would dilute the government’s stake,” The New York Times reported. “That influence has been a key point of contention between Nissan and Renault.”
It seems Renault will have to shelve plans to merge with Nissan in the short-term, according to people briefed on the discussions, as reported by the Financial Times (FT).