A monster arrives in the automotive sector: Fiat Chrysler and Renault confirm the negotiations on the merger

Fiat Chrysler and Renault have confirmed the merger talks. Fiat presented to the gala company an offer to create a leading group in the sector in which the two companies would control 50% of the capital. The Italian company gets 19% on the stock market, while the French company gets 16%.

Renault's Board of Directors met this morning to evaluate the offer. He decided to study "with interest" the merger proposal. "After carefully examining the terms of this favorable proposal, the Renault Board of Directors decided to study with interest the opportunity of this approach, which reinforces the Renault group's industrial presence and generates a added value for the Alliance, "he said.

The French group and the Italian-American group are seeking to improve their position in the digitization and in the electric car, and are open to cross-trading and negotiating a merger. Nissan, Renault's ally, would be isolated from the pact.

Fiat Chrysler Automobiles (FCA) and Renault have come up with a very advanced plan for integrating major technology projects that, predictably, will involve an exchange of stock and the launch of negotiations to investigate a merger. major. This agreement is a response to the magnitude of the challenges facing the automotive sector and the doubts about the ability of some of the world's giants to manage them. This is also the response of the new CEOs of Renault and FCA, Thierry Bolloré and Mike Manley, to doubts about their ability to propose a future plan to both companies after the last management changes.

The Italian and French groups are both struggling to reverse the sales trend in major markets, react to technological upheavals and overcome leadership crises. If last July, FCA had suffered the loss of Sergio Marchionne – the director who had saved Fiat and merged with Chrysler – a few months later, Renault was arrested by its president, Carlos Ghosn, for alleged irregularities in the head. from Nissan. Since then, they are working on a rapid reorganization of the company so as not to lose their position in the market.

The alliance is already virtually defined. The Financial Times, which has advanced the plans between FCA and Renault this weekend, ensures that the board of directors of the French group meets today to make a decision and that it is likely that the day of the announcement of the agreement, aimed at the first moment in the joint development of digital technologies, production platforms and electric car.

The next step will be an exchange of shares or a cross investment between alliance partners. Reuters confirms the plans of the companies while the Japanese newspaper Nikkei goes further and says that in the coming days, Fiat could propose a merger with Renault.

Turbulence

These conversations take place at a delicate time for both companies. Renault is currently reflecting on the future of its alliance with Nissan, in which the Japanese group claims more importance despite the weakness of its latest results.

The French State holds 15% of Renault, which is 15% owned by Nissan and 43% in the Japanese company and 34% by Mitsubishi. The irruption of Fiat could permanently disrupt the foundations of an alliance that dates back to 1999.

In the event of integration, the Renault-Nissan-Mitsubishi alliance would add 4.8 million additional vehicles to its 10.7 million vehicles manufactured last year and become the world's largest automaker, ahead of the Volkswagen group, which 8 million units.

For Renault, this agreement will enable it to improve its position after the closing in March of the worst year of the last decade by Nissan, with a 57% decline in profits and a first dividend in ten years. The French group has already announced a € 56 million impact related to Nissan's poor performance, which responds to declining sales in the United States and the low success of the vehicle launch.

Lace

The FCA truck business in North America, via RAM, and its Jeep brand are profitable, but the Italian-American group is losing money in Europe.

Renault and Nissan, struggling with a conflict that may affect their strategic decisions, should instead be strengthened in the United States and could find at Fiat a significant growth driver. In contrast, French and Italian-American groups are less present in China.

The alliance is also motivated by the European Commission's new requirements for each brand's CO2 emissions. The Community Executive has established the obligation to reduce emissions to 95 grams of CO2 per kilometer from 2021, 20% less than the 118 grams recorded in 2017. This requirement forces the sector to Big efforts if he does not want to suffer heavy penalties. which amounts to 95 euros per car sold. Moody's estimate that fines could exceed 11,000 million.

Unlike Fiat, whose delay in the electric car exposes you to penalties of up to $ 1.3 billion, Renault is distinguished by its commitment to this technology: its model Zoe is one of the best sellers.

As with other large companies, a merger alliance may face significant barriers to competition. However, FCA is primarily a group with a projection in North America and its factories in Europe operate at less than 50% capacity.

FCA has just sold its Magneti Marelli auto parts manufacturing unit to the Japanese Calsonic Kasnsei, owned by the KKR venture capital fund, for 5.8 billion euros.