Fiat Chrysler wants to merge with Renault

Fiat Chrysler proposed on Monday to merge with France’s Renault to create the world’s third-biggest automaker, worth US$40 billion, and combine forces in the race to make electric and autonomous vehicles.

The merged company would reshape the global industry: it would produce some 8.7 million vehicles a year, leapfrogging General Motors and trailing only Volkswagen and Toyota.

Shares of both companies jumped on the news of the offer, which would see each side’s shareholders split ownership in the new manufacturer.

Renault welcomed what it called a “friendly” offer. The company’s board met Monday at its headquarters outside Paris and said afterwards that Renault will study the proposal “with interest”. In a statement, Renault said such a fusion could “improve Renault’s industrial footprint and be a generator of additional value for the Alliance” with Japan’s Nissan and Mitsubishi.

Fiat Chrysler’s offer comes at a key moment for Renault. The French manufacturer had wanted to merge fully with Nissan, but those plans were derailed by the arrest of boss Carlos Ghosn on financial misconduct charges in Japan.

A deal would save €5 billion (US$5.6 billion) for the merged companies each year by sharing research, purchasing costs and other activities, Fiat Chrysler said. It promised the deal would involve no plant closures but did not address potential job cuts.

The companies are largely complementary; Fiat Chrysler is stronger in the United States and SUV markets, while Renault is stronger in Europe and in developing electric vehicles.

Together, they would be worth almost €37 billion (US$40 billion). Shareholders of Fiat Chrysler, which includes the holding company of the founding Agnelli family with a 29 per cent stake, would get a €2.5-billion (US$2.8 billion) special dividend to make up for an imbalance in company values.

“This operation will bring benefits to both countries,” Fiat Chrysler Chairman John Elkann told reporters in Italy, noting that it had been 10 years since Fiat’s takeover of bankrupt Chrysler in exchange for small-car technology and management know-how.

The car market has shifted dramatically in the meantime, with Fiat Chrysler abandoning small cars in the US in favour of SUVs.

Analysts at financial firm Jefferies said it was “hard to disagree with the logic” of the deal as there is a strong fit in the markets each company covers and the brands they offer.

“The elephant in the room is who will run the entity,” analysts Philippe Houchois and Himanshu Agarwal wrote in a note to investors.

The French government, which owns 15 per cent of Renault, said it is “favourable” to the idea of a merger but wants to study the conditions more carefully, especially in terms of “Renault’s industrial development” and employees’ working conditions, government spokeswoman Sibeth Ndiaye said. “We need giants to be built in Europe.”

– AP