A new potential merger of mammoth proportions could be on the horizon as Renault SA is set to restart merger talks with Nissan Motor Co within 12 months. This will be the first step toward creating an even bigger auto conglomerate involving both companies bidding for Fiat Chrysler Automobiles NV.
According to the Financial Times, a new alliance board with Renault chairman, Jean-Dominique Senard, at the helm will add further confidence to both sides to continue with the merger plans. On the face of it, Renault, Nissan, Fiat and Chrysler joining forces will create an automaker that could really compete with global competitors like Volkswagen AG and Toyota Motor Corp.
Fact is, Carlos Ghosn, the former chairman of Renault and Nissan, had talked about merging Renault with Fiat Chrysler about two to three years ago. However, according to anonymous sources within the company, the French government stopped Ghosn’s proposal.
Talks Of Partnerships Affecting Stocks
Fiat Chrysler is also looking for a partnership or merger as Chairman, John Elkann, has already met with several rivals. This includes the likes of Peugeot-maker PSA Group of France in an attempt to gauge the possibility of a deal. Renault, Nissan and Fiat Chrysler declined to comment on the report but nonetheless, shares rose across the board. Renault went up by as much as 3.3% in Paris and 3.8% for Fiat in Milan.
Balance Of Power
Renault owns 43% of Nissan and has a market value (cap) of $19.5 billion while Nissan owns 15% of Renault with a market cap of $35 billion. Speaking of the possible merger, Fiat Chrysler has a market capitalisation of about $23 billion.
Looking at the numbers alone, there seems a clear imbalance of power between Renault and Nissan. This has made an all-out merger between the two controversial which was only spurred on by Ghosn’s attempt to cement their alliance before his arrest.
Of course, such a move faced heavy resistance from stakeholders within Nissan, including Chief Executive Officer, Hiroto Saikawa. According to Saikawa, instead of a deeper capital tie-in, Nissan wants to improve the Japanese bargaining position within a partnership which has favoured the French side for too long.
In light of the current situation and considering that Fiat Chrysler’s management and production cultures are predominantly from Italy and America, adding them into the mix would be quite a challenge. Another complication ahead of any possible merger talks is the fact that Renault’s most powerful shareholder is the French government. As it stands, their stake would potentially be diluted.
Even with all that in mind, the Renault-Nissan alliance is a prime example of a successful combination that didn’t quite go as far as merging and was underpinned by cross-shareholdings and cost-cutting. It certainly is no surprise that the scandal surrounding Ghosn challenged the partnership. Insiders from both companies have stated that trust between the two teams has been affected since the executive was arrested and removed as chairman of both Nissan and Renault.
The partnership has agreed to a new governance structure specifically designed to streamline any and all operational decisions. Considering that Jean-Dominique Senard has been named as chairman of the alliance could bolster proceedings and put the companies back on track.