Fiat Chrysler Automobiles has proposed a €32.6bn all-share merger with Renault, a deal that would reshape the global automotive industry and add new life to the French carmaker’s alliance with Japan’s Nissan.
The proposal for a “transformative merger” would see FCA and Renault each own 50 per cent of the business, which would have combined sales of 8.7m vehicles a year — larger than General Motors and third globally behind Volkswagen and Toyota.
The combined group would have nearly €170bn in annual revenue on operating profit of more than €10bn, and net profit exceeding €8bn, FCA said. It would have a large presence in North America as well as Europe and Latin America, and expertise stretching from small electric vehicles to pick-up trucks.
The proposed tie-up comes despite the departure over the past year of the dominant executives at the two companies who long advocated consolidation: FCA’s Sergio Marchionne and Renault’s Carlos Ghosn. Marchionne died in July, while Mr Ghosn was arrested in Tokyo in November on charges of financial misconduct. Mr Ghosn has maintained his innocence.
A combination would also bring together Italy’s Agnelli family, which owns 29 per cent of FCA, and the French government, which owns 15 per cent of Renault, as the dominant shareholders in the merged company. Both have commanded voting rights beyond their respective shareholdings, but that would fall away through the deal. Their respective shareholdings would also be halved in the new entity.
The top leadership positions were not disclosed in Monday’s proposal. However, John Elkann, who steers Exor, the Agnelli family investment vehicle, is expected to become chairman at the merged group, while Renault chair Jean-Dominique Senard would be named chief executive, multiple people close to the talks said. Englishman Mike Manley, chief executive of FCA, is expected to be named chief operating officer.
A board of 11 representatives would include four representatives each from FCA and Renault and one nominee from Nissan.
Shares in Renault, which began Monday with a market value of almost €15bn, surged 13.8 per cent in early Paris trading. FCA, which started the day worth less than €18bn, climbed 10.6 per cent.
Because of the differences in market value at the start of the day, FCA shareholders would receive a dividend of €2.5bn before the deal closes. The value of the transaction will fluctuate with the share prices.
Although not included in the proposal, the deal would also involve Renault shelving plans to merge with alliance partner Nissan in the short term, according to people briefed on the discussions. Nissan holds a 15 per cent stake in the French group with no voting rights.
Delaying Nissan merger plans will cool tensions between the French and Japanese partners that was exacerbated after the arrest of Mr Ghosn.
The current proposal will also see the French state, which has often been a source of distrust in the alliance, lose its position as the largest shareholder in the group to Exor.
It could also, say people familiar with the matter, see the state have no board seat at the newly created company, but that has yet to be decided, stress others close to the government.
The potential for Nissan to gain voting rights in a newly created Dutch entity — its shares in Renault were not votable under French governance rules — is another inducement, according to people familiar with the deal. However, it remains uncertain whether that will help win Nissan over to the tie-up.
Renault’s board, which met on Monday morning, said it would “study with interest the opportunity of such a business combination”, calling it a “friendly proposal”.
The combined entity could see savings “in excess of €5bn . . . incremental to existing Alliance synergies”, according to a statement from FCA.
FCA estimates €1bn in annual synergies for Renault’s alliance partners Nissan and Mitsubishi from the combination. Those would not come through plant closures but “through more capital efficient investment in common global vehicle platforms, architectures, powertrains and technologies”.
John Elkmann, chairman of FCA, said on Monday that Italy would “reap the benefits if this deal goes ahead”. He added that Fiat Chrysler had “acted with courage” in the past decade, and was ready to do so again.
The French government, which was informed of the specific proposal on Friday, said it was “in favour” of a deal so long as it was “at the same time favourable to the economic development of Renault and obviously to the employees of Renault”.
The deal would be implemented through a Dutch-based holding company plan Renault had earlier proposed for its full merger with Nissan, which the Japanese group has repeatedly resisted.
Goldman Sachs, d’Angelin & Co and Nomura were financial advisers to FCA, while Sullivan & Cromwell and Darrois Villey Maillot Brochier provided legal advice. Financial advisers to Renault were Société Générale and Ardea Partners, and legal advice was provided by Skadden Arps.
