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RENAULT

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Renault, Fiat Look to Nissan Vote, Diplomacy -- WSJ

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06/24/2019 | 02:48am EDT

By Nick Kostov and Sean McLain

The outcome of two meetings in Japan this week will help determine whether Fiat Chrysler Automobiles NV and Renault SA revive plans for their $40 billion merger.

Fiat Chrysler withdrew its offer for Renault earlier this month after the French government sought more time to ensure that Renault's longtime alliance partner Nissan Motor Co. was on board with the deal.

Shareholders at Nissan's annual meeting on Tuesday will vote on a plan to make radical changes to the Japanese company's board. If they approve, Nissan will have a majority of independent directors who, the thinking inside Renault goes, could potentially be more willing to examine a deal on strategic merits rather than through the prism of a fraught alliance.

And later in the week, French President Emmanuel Macron is expected to discuss the 20-year alliance of Renault and Nissan when he meets with Japanese Prime Minister Shinzo Abe ahead of the gathering in Osaka of G-20 leaders, according to a French official. That setting could allow the two heads of state to address issues around the alliance that have intensified since the arrest of former Nissan Chairman Carlos Ghosn, giving the French government the clarity it seeks.

Executives of all three companies remain open to the idea that the deal could return, although they caution that conditions imposed by each side could hobble attempts to restart discussions, people familiar with their thinking said. Industry analysts say the logic of a merger is unchanged, given the cyclical nature of the auto business, with a downturn in sales expected in the coming year, and the steep cost of meeting emissions regulations around the world.

A merger of Fiat Chrysler and Renault would have created the world's third-largest car maker by volume, eventually delivering more than EUR5 billion in annual cost savings through shared vehicle engineering and cooperation in areas such as purchasing and R&D, according to Fiat Chrysler's proposal.

Renault executives are optimistic that the outcome of Nissan's shareholder meeting will jump-start fresh merger discussions with Fiat Chrysler, said people close to Renault. Renault Chairman Jean-Dominique Senard is traveling to Yokohama, Japan, for the meeting and then will join the party traveling with Mr. Macron.

Support for a merger also remains inside Renault's headquarters near Paris, these people said. Employees last week jokingly told Mr. Senard to eat "strawberries" -- the French company's code name for the merger -- while he was lunching in the cafeteria, one of the people said.

Mr. Senard has remained close to John Elkann, his counterpart at Fiat Chrysler, since the talks collapsed. The two men have been in touch recently, although not about the deal, people familiar with the matter said.

Mr. Elkann, who pulled the deal in early June blaming political conditions in France, also is optimistic that Renault and Nissan will fix their alliance soon, some of the people said. However, to even reconsider a deal, Mr. Elkann would want assurances that the French government won't try to direct the outcome of merger talks yet again, these people said. At present, the Italian-American auto maker has no plans to make the first move, they said.

France owns a 15% stake in Renault, making it the largest shareholder.

Publicly, Mr. Elkann and Fiat Chrysler Chief Executive Mike Manley have said they remain open to speaking to potential merger partners. Fiat Chrysler had met with executives at France's PSA Group this spring to discuss a tie-up, before deciding Renault was a better merger partner.

Nissan, whose initial reluctance to back the merger contributed to the breakdown of talks, hasn't closed itself off to the possibility of an eventual tie-up, people familiar with the matter said. However, Nissan wants to ensure that its position within the alliance won't be weakened by the merged company.

Currently, Nissan is the largest member of the alliance, which also includes Mitsubishi Motors Corp. That size advantage is offset by Renault's 43.4% stake in Nissan, while Nissan has only a 15% nonvoting stake in Renault.

A combined Renault and Fiat Chrysler would dwarf Nissan, which could end up with a diminished stake in the merged company. People close to Nissan say the Japanese auto maker will consider backing the merger if there is an agreement in place for the combined company to reduce Renault's stake in Nissan. One of these people said Nissan wants the stake reduced to well below one third of its capital.

Nissan would also like to reshape the alliance to introduce more flexibility and independence for each partner, this person said.

Nissan's new crop of directors include several who Renault's leadership hopes will be more enthusiastic about the shareholder benefits of a Fiat Chrysler deal, the people close to Renault said. Still, Nissan and Renault's recent history is bitter. Tensions between the two grew in recent years as some Nissan executives chafed at Renault's efforts to turn the alliance into a merger.

Nissan in May fended off a merger entreaty from Renault, which envisaged placing the partners under a holding company. Mr. Senard had said publicly in March that it was too early to discuss changes to the structure of the alliance, but then approached Nissan CEO Hiroto Saikawa about a potential merger in April.

The relationship was already strained after the arrest last year of Mr. Ghosn, the former chairman of the three alliance companies. Both Nissan and Renault have traded barbs over the handling of the investigation into alleged wrongdoing by Mr. Ghosn, which he denies.

These events have colored Nissan executives' view of the proposed Renault and Fiat Chrysler merger, as well as Renault's recent threat to abstain from a shareholder vote on Nissan corporate-governance reforms. A last-minute deal earlier this week saw Nissan capitulating to Renault's demands for greater board representation.

--Eric Sylvers contributed to this article.

Write to Nick Kostov at Nick.Kostov@wsj.com and Sean McLain at sean.mclain@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
FIAT CHRYSLER AUTOMOBILES -0.15% 13.61 Delayed Quote.-5.74%
FIAT CHRYSLER AUTOMOBILES 0.07% 12.188 End-of-day quote.-3.96%
NISSAN MOTOR CO LTD -0.79% 768 End-of-day quote.-10.29%
RENAULT -0.78% 52.18 Real-time Quote.-4.34%
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Financials (EUR)
Sales 2019 56 649 M
EBIT 2019 3 371 M
Net income 2019 3 080 M
Finance 2019 2 983 M
Yield 2019 6,42%
P/E ratio 2019 4,97x
P/E ratio 2020 4,40x
EV / Sales2019 0,19x
EV / Sales2020 0,19x
Capitalization 13 972 M
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Mean consensus HOLD
Number of Analysts 25
Average target price 65,33  €
Last Close Price 52,18  €
Spread / Highest target 82,1%
Spread / Average Target 25,2%
Spread / Lowest Target -22,1%
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Managers
NameTitle
Thierry Bolloré Chief Executive Officer
Jean-Dominique Senard Chairman
Clotilde Delbos Chief Financial Officer & Executive Vice President
Carlos Ghosn Bichara Director
Philippe Lagayette Lead Independent Director
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