Renault-Nissan Alliance At Crossroads Over Voting Stakes, Power

The battle between Nissan and the French government over the former’s voting stake in the Renault-Nissan Alliance continues on.

This month, after temporarily raising its stake to 19.7 percent, the French government cut back its stake to around 15 percent, which is still enough voting power under the Florange Law to block anything it didn’t like from Nissan and its allies during shareholder meetings.

However, second-in-command at Nissan, Chief Competitive Officer Hiroto Saikawa, expressed it wasn’t enough to go back to “the situation of seven months ago,” desiring “a better balance between the two companies,” a source told Reuters.

Instead, Nissan responded to the draw-down with a proposal establishing a “better-balanced” 25-percent/35-percent crossed shareholding, with Nissan finally having a say after 16 years of merely owning a piece of the company which rescued it from death back in 1999.

In March 1999, Nissan was in a bad way financially. Bloomberg reported the company’s then-chairman, the late Yoshifumi Tsuji, admitted management had mishandled Nissan’s heavy debts, totalling $21 billion USD in 1999 dollars. The dire straits Nissan found itself struggling against forced the automaker to find someone — anyone — who would be interested in rescuing the company.

By the end of the month, Renault would inject $5.4 billion into Nissan, resulting in Renault owning 37-percent of Nissan Motor and 22.5 percent of Nissan Diesel Motor. The French automaker also installed Carlos Ghosn as the CEO of the newly established Renault-Nissan Alliance. Ghosn, who had done wonders in rescuing Renault as its executive vice president three years previous, would lend his cost-cutting magic to Nissan on the promise if he couldn’t turn the Japanese automaker around by the end of FY 2002, he would resign.

Once Nissan was back on its feet (via layoffs, selling of businesses not tied to Nissan’s core focus, and other cost-cutting measures), it bought a 15 percent stake in Renault in 2001, while Renault increased its stake in Nissan to 43.4 percent. Though seen as a sign of prosperity for Nissan back then, the arrangement would come to be the cold war it is now over two key details of the arrangement.

First, the stake Nissan purchased was a non-voting stake; French law prohibits certain voting rights of affiliated companies. As Renault holds a greater-than-40-percent stake in Nissan, the Japanese automaker is not allowed to vote on Renault’s affairs. This was seen as fine at the time of purchase, since the alliance allowed the two automakers and their respective brands to go their own way while exchanging data and research with each other.

However, Renault’s part of the alliance came with baggage: Back in 1996, the French automaker went private after finding itself in similar financial woes. Around this time, the French government bought a 15-percent voting stake in the company, a stake which carried over to the alliance. When Renault bought into Nissan, so did the French government, opening a path to the problems that sit before Ghosn and Nissan now.

Fast-forward to April of 2015. The French government, with efforts led by Economy Minister Emmanuel Macron, wanted to take the alliance into a full-fledged merger, similar to that of FCA or PSA Peugeot-Citroen. To do this, it invoked the recently passed Florange Law, granting the government double-voting privileges on its long-term stake ownership.

Meanwhile, Nissan had outgrown the rest of the alliance, accounting for two-thirds of total sales between the two parent companies involved. Ghosn wanted more say in how the alliance works by opting out of said law, as well as increasing Nissan’s stake and asking Renault to reduce theirs. The reduction would then allow Nissan’s stake voting rights under the same French law currently prohibiting the automaker from having a say at the shareholders’ table.

Macron upped the ante instead, increasing the government’s stake in Renault to nearly 20 percent. The reasoning was France wanted to protect its interests as a key shareholder by boosting its voting abilities.

This reasoning was still in effect as of the early days of November 2015. Macron continued to push for a full merger, something the French government had been leery of committing to out of fear it would weaken its power over the alliance. The economy minister went so far as to urge Ghosn to set up a joint working group with government officials to explore such scenarios, all to protect Renault’s workers and plants.

Ghosn chose to ignore Macron’s urging, opting to consider a merger where France is left with a greatly reduced role in the alliance, such as the plan drafted in 2013 with help from Goldman Sachs before being set aside. Part of those merger plans included the aforementioned “better balanced” holdings between Nissan and Renault, with support from those on the board to cut down Renault’s stake if necessary.

Those close to the issue noted Macron, if pushed, could “do a lot of harm to a company and meddle badly without even owning a major stake in it,” as well use the conflict to boost his weak cred with those on the left of France’s Socialist party.

Whether this scenario comes up remains to be seen.