28 May, 2019

FCA proposes ‘friendly’ merger plan with Renault

Fiat Chrysler Automobiles (FCA) has submitted a merger proposal to French carmaker Renault, which would see both companies holding a 50/50 stake in the new business.

Renault’s board has decided to study ‘with interest’ the opportunity of such a business combination, which it believes will comfort its manufacturing footprint and create additional value for the Alliance.

The FCA proposal follows initial discussions between the two carmakers to identify products and geographies where they could collaborate, as the industry goes through a period of change. With carmakers looking to collaborate in multiple areas, the Italian business believes that broader collaboration through a merger would substantially improve capital efficiency and the speed of product development.

Changing times

‘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 automotive industry in areas like connectivity, electrification and autonomous driving,’ the company said in its statement.

The deal would create a manufacturing group with a strong presence across key regions, automotive markets and technologies, generating €5 billion in annual savings, according to FCA. The merger would bring FCA's brands such as Jeep, Chrysler, Alfa Romeo and Fiat under a common umbrella with Renault Group's Renault, Dacia and Lada brands.

The move would also create Europe’s second-biggest automotive group, returning Renault to the position it held for several years before PSA Group’s acquisition of Opel and its UK subsidiary Vauxhall.

Combining the businesses will bring together complementary strength,’ states FCA. ‘The combination would create a brand portfolio that would provide full market coverage with a presence in all key segments from luxury/premium brands, such as Maserati and Alfa Romeo, to the strong access brands of Dacia and Lada, and would include the well-known Fiat, Renault, Jeep and Ram brands as well as commercial vehicles.’

Shareholding

The transaction will be structured as 50/50 ownership through a Dutch holding company, FCA said, adding that it would give Renault investors an implied premium of about 10%. After payment of a €2.5 billion special dividend to FCA shareholders, each group would receive 50% of the combined entity in new stock.

Exor, the holding company of Fiat's founding Agnelli family, is set to become the single largest shareholder in the combined entity. The new company would be chaired by John Elkann, head of the Agnelli family that controls 29% of FCA, sources familiar with the deal talks told Reuters. Renault Chairman Jean-Dominique Senard would likely become CEO of the new business.

If the plan goes ahead, Nissan and the French Government will own about 7.5% apiece of the new, merged company. The French Government favours the merger but wants more details before giving its final approval.

French Finance Minister Bruno Le Maire said the country’s Government would seek ‘four guarantees’ on the deal, including the protection of French jobs, ensuring France was well-represented on the board of the new entity, and ensuring Renault/Fiat was a leader in the development of electric vehicle batteries.

The Italian Government may want to acquire a share of the new company to balance France's stake, said a politician from the Northern League, the country's largest party.