Fiat Chrysler Proposes Merger With Renault

Thirty-two years after Chrysler bought Renault’s controlling stake in AMC, absorbing the automaker and folding its French-developed passenger cars into the new Eagle brand, the automaker’s Fiat Chrysler successor is interested in a merger.

On Monday, Fiat Chrysler Automobiles submitted a proposal for a “transformative merger” with Groupe Renault. The 50:50 merger would create the world’s third-largest automobile company and generate $5.6 billion in annual savings, FCA claims — equal to efficiencies born of the Renault-Nissan-Mitsubishi Alliance.

A non-binding letter was sent to Groupe Renault’s board of directors today outlining the proposal.

From FCA:

The FCA proposal follows initial operational discussions between the two companies to identify products and geographies where they could collaborate, particularly as they develop and commercialize new technologies. These discussions made clear that broader collaboration through a combination would substantially improve capital efficiency and the speed of product development. The case for combination is also strengthened by the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry in areas like connectivity, electrification and autonomous driving.

The proposed combination would create a global automaker, preeminent in terms of revenue, volumes, profitability and technology, benefitting the companies’ respective shareholders and stakeholders. The combined business would sell approximately 8.7 million vehicles annually, would be a world leader in EV technologies, premium brands, SUVs, pickup trucks and light commercial vehicles and would have a broader and more balanced global presence than either company on a standalone basis.

Shares in the combined company would be evenly split by Renault and FCA shareholders, FCA said, with shareholders given an equivalent equity stake in the new entity. FCA shareholders would receive a $2.8 billion dividend. The company itself would be structured through a Dutch holding company. An 11-member board would contain four directors from both FCA and Renault, plus one nominated by Renault’s alliance partner, Nissan.

According to sources who spoke with Reuters, FCA Chairman John Elkann, head of the Agnelli family that holds 29 percent of the automaker’s shares, would become chairman of the new entity. Newly installed Renault Chairman Jean-Dominique Senard, one source said, would likely become CEO.

Groupe Renault, whose subsidiaries include the reborn Alpine brand, the Romanian economy car brand Dacia, and Russia’s AvtoVAZ, maker of Lada vehicles, is studying the proposed merger “with interest.”

“After careful review of the terms of FCA’s friendly proposal, the Board of Directors decided to study with interest the opportunity of such a business combination, comforting Groupe Renault’s manufacturing footprint and creating additional value for the Alliance,” the automaker said in a statement.

Assuming Groupe Renault finds the proposal to its liking, finalizing the deal could take more than a year, FCA CEO Mike Manley told employees.

The proposal could spark strife in Renault’s periphery. The French government holds a 15-percent stake in the company; meanwhile, alliance partner Nissan, of which Renault holds a 43.4-percent voting stake, does not have voting rights over its French partner, of which it holds a 15-percent stake. Since former chairman Carlos Ghosn’s arrest, Nissan’s bonds with Renault have frayed. The Japanese automaker finds itself in turbulent financial waters, with falling profits and sales sparking a restructuring plan that the company’s CEO, Hiroto Saikawa, says will get the company back on track. But not for a while.

News of the proposed merger buoyed FCA’s stock, with share prices currently up 11 percent in Milan.

In its proposal, FCA said 90 percent of the savings realized through a merger would come from efficiencies in purchasing, R&D, and manufacturing and tooling. No plant closures would result from the tie-up, it said.

“The combination would create a brand portfolio that would provide full market coverage with a presence in all key segments from luxury/premium brands, such as Maserati and Alfa Romeo, to the strong access brands of Dacia and Lada, and would include the well-known Fiat, Renault, Jeep and Ram brands as well as commercial vehicles,” FCA stated.

“Groupe Renault has a strong presence across Europe, Russia, Africa and Middle East, while FCA is uniquely positioned in the high margin segments in North America and is a market leader in Latin America. FCA’s evolving capability in autonomous driving, which includes partnerships with Waymo, BMW and Aptiv, is complemented by Groupe Renault’s decade of experience in EV technology where it is the highest selling EV OEM in Europe. Groupe Renault also has a well-established and profitable financing business (RCI Banque).”

[Images: Fiat Chrysler Automobiles, Renault]