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Fiat Chrysler on Monday proposed to merge with French Renault to create the world's third-largest automaker, worth $ 40 billion, and join forces to create electric and autonomous vehicles.
The merged company would restructure the global sector: it would produce about 8.7 million vehicles a year, far exceeding General Motors and ahead of Volkswagen and Toyota.
The shares of both companies jumped on the announcement of the offer, which would see shareholders on each side share ownership of the new manufacturer.
Renault hosted what he called a "friendly" offer. The board of directors of the company met Monday at its headquarters outside Paris and said that Renault would study the proposal "with interest". In a statement, Renault said that such a merger could "enhance Renault's industrial footprint and generate additional value for the Alliance" with Japanese automakers Nissan and Mitsubishi.
Fiat Chrysler's bid comes at a key moment for Renault. The French manufacturer wanted to merge completely with Nissan, but these plans were disappointed by the arrest of the boss Carlos Ghosn for financial misconduct in Japan.
The Renault-Nissan-Mitsubishi alliance, which manufactures more cars than any other company, raises more and more questions. Although Fiat Chrysler says that the merger with Renault would allow the alliance to materialize and save money, it is not clear how Japanese companies could react in the longer term by being linked to a much larger partner.
Car manufacturers have collaborated more in recent years because they are under pressure to invest heavily in the development of electric cars, autonomous vehicles and on-board connectivity. Regulators, particularly in Europe and China, are pushing car manufacturers to produce electric vehicles and comply with stricter regulations on climate change, a pressure that only increased after scandals about the amount of pollutants emitted by gasoline and diesel engines.
An agreement would save 5 billion euros ($ 5.6 billion) a year for merged companies through sharing of research, purchase costs and other activities, Fiat said. Chrysler. He promised that the deal would not result in plant closures, but it did not deal with potential job cuts.
The companies are largely complementary: Fiat Chrysler is stronger in the US and SUV markets, while Renault is stronger in Europe and in the development of electric vehicles. Analysts say the two companies are weak in China, which is now the largest auto market in the world.
Together, they would represent nearly 37 billion euros (40 billion dollars). Fiat Chrysler, which includes the parent company Agnelli's holding company, with a 29% stake, has offered its shareholders a special dividend of 2.5 billion euros ($ 2.8 billion) because of the greater market value of Fiat Chrysler.
"This operation will bring benefits to both countries," Fiat Chrysler Chairman John Elkann told Italian journalists, noting that 10 years have pbaded since Fiat bought Fiat Chrysler in exchange for the technology. small cars and the know-how of the management.
The auto market has evolved considerably in the meantime as Fiat Chrysler abandoned small cars in the United States for SUVs.
Analysts at the financial firm Jefferies said that it was "hard to disagree with the logic" of the deal because the markets that each company covers and the brands that it proposes are closely related.
"It's the elephant in the room that runs the company," badysts Philippe Houchois and Himanshu Agarwal wrote in a note to investors.
It can be difficult to manage a peer-to-peer merger by asking who gets the best management positions and which brands are promoted and invested the most. A rapprochement between Daimler and Chrysler in the 1990s was presented as a merger of equals, but it eventually collapsed amidst cultural differences and recriminations.
Investors were nevertheless enthusiastic about the Fiat Chrysler project, boosting its shares by 8% and Renault by 12%.
The French government, which owns 15% of Renault's capital, said it was "in favor" of the idea of a merger but wants to study the conditions in more detail, particularly with regard to " the industrial development of Renault "and the working conditions of employees, the spokesman of the government, Sibeth, Sibeth Dit Ndiaye. "We need giants to be built in Europe."
The legal problems of Ghosn in Japan have made Renault vulnerable. Ferdinand Dudenhoeffer, head of the CAR Automotive Research Center at the University of Duisburg-Essen, said the Ghosn merger project between Renault and Nissan-Mitsubishi had "little attraction" for the Japanese.
He pointed out that Renault sales accounted for only 36% of 2018 Alliance sales – and that the Japanese did not want the French automaker to merge with these numbers.
A merger of Renault with Fiat Chrysler could however strengthen the positions of both companies and put pressure on small companies such as Ford in Europe.
The merger idea is the largest initiative so far undertaken by Mike Manley, CEO of Fiat Chrysler, who took office after the unexpected death of charismatic leader Sergio Marchionne last year.
What happens to jobs is likely to be a cause for concern.
The influential French CGT union warned of cuts and said it hoped the French government would retain a blocking stake in any new venture.
"We know that when it comes to mergers … in the end, it is the employees who pay the high price: loss of jobs, need to compete with others," said Fabien Gache of the CGT.
Matteo Salvini, party leader of the right-wing populist League and Italian deputy prime minister, said that "if Fiat grows, this is good news for Italy and the Italians", although it warned that an agreement should protect "every job".
In Tokyo, Nissan CEO Hiroto Saikawa did not comment directly on the merger idea, but said: "I am always ready to share constructive views on strengthening the alliance."
The merger will be complicated by the fact that the merged company would involve operations in the United States and several European countries as well as Renault's "eroding alliance" with two Japanese automakers, said Karl Brauer, executive editor of Kelley Blue Book and Autotrader.
"It's a powerful combination in theory," he said, "but targeting a single, aligned automotive entity, with everyone rowing in the same direction, might not be realistic."
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