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Fiat Chrysler proposes plan to merge with France's Renault

May 27 2019 08:42
Tommaso Ebhardt and Daniele Lepido, Bloomberg

Fiat Chrysler proposed to merge with Renault SA in a deal that would create the world’s third-biggest carmaker.

The transaction will be structured as a 50-50 ownership through a Dutch holding company, Fiat said in a statement Monday, adding that it has an implied premium of about 10% for Renault investors and won’t entail plant closures. Exor, the investing arm of Fiat’s founding Agnelli family, is set to become the largest single investor in the combined entity.

In a separate statement, the French carmaker said its board will meet later in the morning to discuss the proposal.

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 US and Europe - have brought fresh urgency to consolidate. Fiat and Renault expect their joint annual “synergies” to amount to more than $5.6bn, 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.”

Together, Renault and Fiat had a combined market value of €32.6bn as of Friday.

Fiat and Renault have moved ahead without the French carmaker’s 20-year partner, Nissan, and Mitsubishi Motors,, the other member of their three-way alliance. Both Fiat and Renault went through dramatic changes at the top last year after former Fiat chief, Sergio Marchionne, died and Carlos Ghosn, who was chairperson of the Franco-Japanese alliance, was arrested in Tokyo on charges of financial crimes.

Third biggest in the world 

Together, the two companies 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. That’s still behind the world’s two biggest automakers, Volkswagen and Toyota, who both topped 10 million vehicles last year. Renault’s existing alliance, including numbers from partners Nissan and Mitsubishi, also reached this milestone.

Adding Fiat and Renault, along with its Japanese partners would bring the total to more 15 million vehicles a year, with a strong presence in all major markets and premium brands like Jeep, Maserati, Alfa Romeo and Infiniti under a common umbrella.

Fiat and Renault would have a “broad and complementary brand portfolio” covering markets from luxury to mainstream, the Italian company said in its statement.

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 1.5bn to 2bn, people familiar with the matter said at the time.

Ghosn’s arrest widened a rift between Renault and Nissan, which has resisted proposals by the French company to merge in a holding-company structure.

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’s Waymo.

renault  |  fiat chrysler  |  nissan  |  carlos ghosn
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