Fiat Chrysler presents its merger offer to the Renault Board of Directors

Fiat Chrysler has made a "transformative" merger proposal to Renault as part of an agreement that would create the world's third-largest automaker.

The plan, finalized Monday during discussions with Renault, was discussed Monday at a meeting of the board of directors of the French group and led to a sharp rise in shares of both companies.

This agreement would create a car manufacturer selling 8.7 million vehicles annually and boasting a strong presence in key regions, automotive markets and technologies, FCA said. This would generate 5 billion euros in estimated annual savings.

The "extended and complementary brand portfolio would provide comprehensive market coverage, from luxury to the general public," Fiat added.

If successful, this merger would change the competitive landscape of competing manufacturers, from General Motors to Peugeot, the PSA group, which has recently conducted its own inconclusive talks with Fiat.

This could also have profound repercussions on Renault's 20-year alliance with Nissan, already weakened by the crisis surrounding the arrest and ouster of former President Carlos Ghosn at the end from last year.

Fiat Chrysler shares, quoted in Milan, jumped 19% at the beginning of the transaction, while those of Renault jumped 17%. PSA shares fell by 2.5%.

"The FCA corresponds to Renault as well as to PSA," said Philippe Houchois, an badyst at Jefferies, in a note after the announcement of the breakdown of the negotiations.

The FCA-Renault plan would see the two automakers merged under a listed Dutch holding company. After the payment of a 2.5 billion euro dividend to the current shareholders of the FCA, each group of investors would receive 50% of the shares of the new company.

It would be chaired by John Elkann, head of the Agnelli family who controls 29% of the FCA, told Reuters sources close to the negotiations. Renault's president, Jean-Dominique Senard, would likely become the CEO, said one of the officials.

FCA-Renault, like almost all possible automobile couplings, had been studied intermittently for years by the manufacturers. But the conflicting relationship between Ghosn and FCA's late CEO Sergio Marchionne has made constructive negotiation impossible before Marchionne's sudden death, banking sources said.

The pressure for consolidation of automakers has increased with the challenges of electrification, the tightening of emissions regulations and the development of costly new technologies for connected and autonomous vehicles.

"The case for the combination is also reinforced by the need to make bold decisions to take full advantage of the opportunities created by the transformation of the automotive sector," said FCA.

However, the agreement still faces political and professional obstacles in Italy and potentially in France. Most of FCA's European plants operate below 50% capacity.

Fiat said that the expected cost savings would not depend on the closure of factories.

"The market will be cautious with these synergy figures because a lot has been promised before and there is not a single merger of equals that has ever succeeded in Autos," said Arndt Ellinghorst, badyst at Evercore ISI. , in an email.

Investors will probably remain wary of the risks of running a Franco-Italian-American. the case, he added, "even with less big egos involved".

The French government, the largest shareholder of Renault with a 15% stake, supports the merger, but will need more details, said Monday his main spokesman.

France will be "particularly vigilant with regard to employment and the industrial footprint," said another Paris official, adding that any agreement should preserve Renault's alliance with Nissan, which had recently rejected the merger proposal of the French manufacturer.

The Italian government could also seek to take a stake in the merged group to balance the position of France, announced Monday a legislator of the ruling party, the ruling party.

Anticipating such sensitivities, the FCA highlighted "new opportunities for employees of both companies" as part of the merger.

"The benefits of the proposed transaction are not based on the closing of factories, but would be achieved through more profitable capital investments in global vehicle platforms, architectures, powertrains and technologies" , did he declare.

Nissan, 43.4% owned by Renault, would be invited to appoint a director on the board of 11 members of the new unified company, as part of the plan presented Monday.

As alliance partners, Nissan and its affiliate Mitsubishi would benefit from estimated annual savings of 1 billion euros through the merger, added FCA.