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Renault headquarters, exterior

Fiat Plans Merger With Renault in Latest Auto Industry Jolt

May 27, 2019
The merger would create the world's third-biggest carmaker.

Fiat Chrysler Automobiles NV proposed a merger with Renault SA to create the world’s third-biggest carmaker as manufacturers scramble for scale to tackle an expensive shift to electrification and autonomous driving.

The transaction would be structured as a 50-50 ownership through a Dutch holding company, Fiat said Monday. Renault shareholders, including the French government, would get an implied premium of about 10%. In a statement, Renault’s board said it would study what it called a “friendly” proposal.

The carmakers are moving ahead without Renault’s 20-year partner, Nissan Motor Co., and Mitsubishi Motors Corp., the other member of their alliance. Fiat has conditioned the merger talks on Renault agreeing not to pursue a transaction with Nissan in the short term, according to people familiar with the matter.

The broad strokes of the plan would make Fiat’s founding shareholder, the Agnelli family’s holding company Exor NV, the single largest investor in the combined entity. Fiat Chairman John Elkann would likely stay in the role while Renault Chairman Jean-Dominique Senard would be chief executive officer, according to people familiar with the matter who declined to be named.

Renault shares surged as much as 16.7%, while Fiat rose as much as 19.5%, the most ever. Together, they had a combined market value of about 35 billion euros (US$39 billion).

The talks come as automakers worldwide face intense pressure to spend heavily on new technologies and adapt to trends such as car-sharing. Falling sales in the world’s biggest markets -- China, the U.S. and Europe -- have brought fresh urgency to consolidate. Fiat and Renault expect their joint annual “synergies” to amount to more than 5 billion euros, coming from areas such as purchasing power.

“Fiat and Renault are looking for surer footing by gaining scale, and that’s not a bad idea for mass-market carmakers,” Bankhaus Metzler analyst Juergen Pieper said. “The execution of the deal is a significant hurdle. But on paper, this proposal looks good.”

The plan has political backing from the French state, which is Renault’s most powerful shareholder. Finance Minister Bruno Le Maire met last week with Senard to discuss the proposal, government spokeswoman Sibeth Ndiaye said on BFM television Monday.

"We need to have industrial giants in Europe" to compete globally, she said. "Obviously we have to see the conditions" of the deal, to ensure that it would be favorable to Renault’s development and to its employees.

On hearing news of the possible tie-up, Italy’s rightist League party of Deputy Premier Matteo Salvini, who has in the past clashed virulently with French President Emmanuel Macron, swiftly invoked Italy’s “national interest” and dangled the option of the Rome government stepping in.

Italy will ensure “that the historic value of Fiat is guaranteed, otherwise we’ll intervene,” League’s Claudio Borghi, who heads the lower house budget committee, told La7 television, adding that could include the state taking a stake in Fiat to match the French holding in Renault.

Fiat and Renault went through dramatic changes at the top last year after former Fiat chief, Sergio Marchionne, died and Carlos Ghosn, who was chairman of the Franco-Japanese alliance, was arrested in Tokyo on charges of financial crimes.

Ghosn’s removal from the helm of the Franco-Japanese partnership brought simmering tensions to the surface, with Nissan so far rejecting a French push for a merger. Fiat has conditioned its own merger talks with Renault to the French carmaker agreeing not to pursue a transaction with Nissan in the short term, the people said. Should Renault’s deal with Fiat go through, Nissan will find itself chained to the new entity through deeply integrated operations and cross-shareholdings with the French manufacturer.

Together, Fiat and Renault made about 8.7 million cars last year, which would vault the pair past South Korea’s Hyundai Motor Group and Detroit’s General Motors Co. That’s still behind the world’s two biggest automakers, Volkswagen AG and Toyota Motor Corp., who both topped 10 million vehicles last year. But if combined with output of Renault’s existing alliance with Nissan and Mitsubishi, the total would be more than 15 million vehicles a year.

Fiat and Renault would have a “broad and complementary brand portfolio” covering markets from luxury to mainstream, the Italian company said in its statement. Premium brands Jeep, Maserati, Alfa Romeo and Infiniti would come under a common umbrella.

Fiat would give Renault access to the North American market, while gaining clout in Russia, the French carmaker’s second-biggest market with its Avtovaz unit. Both companies reported lower deliveries in the first quarter.

As part of the proposed deal, Fiat said it plans to spin off its robotics arm Comau through a distribution of shares. The company had considered options for the unit late last year, including a potential sale at a value of 1.5 billion euros to 2 billion euros, people familiar with the matter said at the time.

The proposed deal between Fiat and Renault comes against a backdrop of an industry undergoing one of the biggest tectonic shifts in its history. Carmakers are being pushed by regulators to develop electric vehicles to lower emissions. They’ve also been forced to spend on self-driving technology or risk getting left behind by deep-pocketed competitors like Alphabet Inc.’s Waymo.

Merging companies with production facilities in North America, Europe and Japan won’t be an easy task and deal history in the car industry is marked by some spectacular failures. Daimler AG a decade ago unwound a merger with Chrysler after failing to overcome cultural differences between the German luxury-car maker and U.S. producer of mid-range cars. Volkswagen’s planned alliance with Suzuki Motor Corp. ended in a London arbitration court before any joint vehicle came off the production line.

By Tommaso Ebhardt and Daniele Lepido

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