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Fiat Chrysler proposes merger with Renault

UPDATED: Italian-US auto giant Fiat Chrysler presented a merger proposal to France's Renault on Monday that would create the world's third largest automaker.

Fiat Chrysler proposes merger with Renault
A Fiat Chrysler Automobiles logo is displayed during the Geneva International Motor Show in March. Photo: HAROLD CUNNINGHAM / AFP

Fiat Chrysler delivered a non-binding letter to Renault proposing “a combination of their respective businesses as a 50/50 merger”, with a group that would be listed in Paris, New York and Milan, it said in a statement.

Renault said its board would meet on Monday to discuss the offer. According to a source within the French company, the meeting began at 8 am at Renault's Boulogne-Billancourt headquarters near Paris.

The source said, however, that a decision was not expected by the close of the day: “it will take days, or even weeks”. Monday's board session would merely examine whether or not to explore the offer on the table, the source said.

After the news broke, shares in Fiat Chrysler Automobiles (FCA) soared 18 percent when the Milan stock exchange opened on Monday, before falling back slightly.

Fiat Chrysler said the merger would create “a pre-eminent global automotive group”, with annual sales of 8.7 million vehicles. 

The brand portfolio of the two groups would be “broad and complementary… and would provide full market coverage, from luxury to mainstream”, it said. The combination would be carried out as a merger transaction under a Dutch parent company.

Renault's current major partnership is with Japan's Nissan, in which it holds 43 percent. Nissan in turn owns 15 percent of its French partner Renault but the imbalance in the relationship has led to serious friction, highlighted by the arrest of former Renault and Nissan chief Carlos Ghosn in Tokyo.

The Renault-Nissan-Mitsubishi alliance currently makes around 10.8 million automobiles, compared with Germany's Volkswagen and Japan's Toyota, both on around 10.6 million. However, the tie-up with FCA could make Renault much more powerful, potentially further upsetting the balance in the Renault-Nissan-Mitsubishi alliance where Ghosn was pushing for much more say before his downfall.

In recent weeks, Renault has been pushing for changes to its tie-up with Nissan, suggesting the formation of a 50-50 holding company to run both firms. However, Nissan has resisted, feeling it is the bigger company and should be
treated as such.

Fiat Chrysler has been under pressure in Europe, stoking speculation it was looking for a partner as the industry is forced to consolidate in the face of declining demand and a costly switch into electric cars.

Fiat Chrysler is widely seen as a latecomer to the electric vehicle market but does well in the US SUV and pick-up sectors. Renault, meanwhile, has pushed ahead in electric cars but is relatively weak in North America, so the two companies would be a good fit.

Fiat Chrysler said the merger would put the group in “a strong position in transforming technologies, including electrification and autonomous driving”.

Early this year, rumours circulated that Renault was interested in Fiat-Chrysler after its hopes for a full merger with Nissan or even French competitor PSA were dashed.

Fiat Chrysler said the merger would create “in excess of €5 billion estimated annual run rate synergies” on top of existing
Renault-Nissan-Mitsubishi Alliance ones. All counted, including Nissan and Mitsubishi, it would mean the production
of close to 16 million vehicles, besting Volkswagen and Toyota.

The merger would not result in the closure of any production sites, and the board of directors of the new group would be composed mainly of independent members, Fiat Chrysler said. 

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RENAULT

France ready to cut Renault stake to shore up Nissan partnership: minister

France is ready to consider cutting its stake in Renault in the interests of consolidating the automaker's alliance with Nissan, Finance Minister Bruno Le Maire said on Saturday.

France ready to cut Renault stake to shore up Nissan partnership: minister
A Renault employee works at the automaker's factory in Maubeuge, northern France. File photo: Ludovic MARIN / AFP
He was speaking in Japan after Italian-US carmaker Fiat Chrysler pulled the plug on its proposed merger with Renault, saying negotiations had become “unreasonable” due to political resistance in Paris.
 
In an interview with AFP on the sidelines of the G20 finance ministers meeting in Japan, Le Maire said Paris might consider reducing the state's 15-percent stake in Renault if it led to a “more solid” alliance between the Japanese and French firms.
 
“We can reduce the state's stake in Renault's capital. This is not a problem as long as, at the end of the process, we have a more solid auto sector and a more solid alliance between the two great car manufacturers Nissan and Renault,” he told AFP.
 
Last week, FCA stunned the auto world with a proposed “merger of equals” with Renault that would — together with Renault's Japanese partners Nissan and Mitsubishi Motors — create a car giant spanning the globe. The combined group would have been by far the world's biggest, with total sales of some 15 million vehicles, compared to both Volkswagen and Toyota, which sell around 10.6 million apiece.
 
But the deal collapsed suddenly on Thursday, with FCA laying the blame at the door of Paris. 
 
“It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully,” FCA said in a statement.
 
Le Maire said Renault should concentrate on forging closer ties with its Japanese partner Nissan before seeking other alliances.
 
Things need to be done “in the right order…. First the alliance (between Nissan and Renault) should be consolidated and then consolidation (more generally) and not one before the other.”
 
“Otherwise, everything risks collapsing like a house of cards,” he warned.
 
The minister said it would be up to the bosses of Renault and Nissan to decide how to push the alliance forward as ties between the two firms have been strained after the shock arrest of former boss Carlos Ghosn.
 
Renault is pushing for a full merger between the pair but there is deep scepticism of the plan at Nissan.
 
There were varied reactions from the French unions Saturday.
 
“The government is behaving like the agent of the big shareholders, favouring short-term profit to the detriment of the interests of the country,” said Fabien Gache, of the CGT union.
 
Cutting the state's share in Renault was abandoning its responsibility in the country's auto industry, he argued.
 
Franck Daout of the CFDT union said it backed a three-way alliance between Renault, Nissan and Japan's Mitsubishi — but not one between Nissan and Renault until the alliance had reached a “safe and sustainable maturity”.
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