Fiat Chrysler seeks Renault merger to meet auto challenges

Fiat Chrysler has pitched a finely balanced merger of equals to Renault in a move to cope with the costs of far-reaching technological and regulatory changes by creating the world’s third biggest carmaker

Fiat Chrysler has pitched a finely balanced merger of equals to Renault in a move to cope with the costs of far-reaching technological and regulatory changes by creating the world’s third biggest carmaker.

If successful, the US$35bil-plus tie-up would alter the competitive landscape for rivals including General Motors and Peugeot maker PSA Group, which recently held inconclusive talks with Fiat Chrysler (FCA).

The Italian-American group’s plan, which was finalised in overnight talks with Renault, will be discussed at a meeting of the French company’s board yesterday.

Investors welcomed the blueprint for an automaker producing more than 8.7 million

€5bil vehicles a year and aiming for in annual savings, with shares in both companies rising sharply.

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

€2.5bil listed Dutch holding company. After a dividend paid to existing FCA shareholders, investors in each company would receive half of the new entity.

This would be chaired by John Elkann, head of the Agnelli family that controls 29 percent of FCA, sources familiar with the talks told Reuters, while Renault chairman JeanDominique Senard would likely become CEO. Italian Deputy Prime Minister Matteo Salvini said the proposed merger could be good news for Italy if it helped Fiat 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.

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

A deal could help both companies address shortcomings, 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 may struggle with new emissions curbs.

Renault, by contrast, was an early mover in electric cars, with relatively fuel-efficient engine technologies and a strong presence in emerging markets, but no US business. Both are marginal players in China.

“The case for combination is also strengthened by the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry,” FCA said.

It 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.

Source: Reuters 

Posted on : 28 May 2019
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Last Updated : Thursday 17th October 2019