Renault’s Plan To Merge With Nissan, FCA, Raises Doubts.
“This idea is half-baked, politically almost impossible to deliver and even if achieved, the resulting company would be unmanageable”
PSA Group of France was said to be interested in buying Fiat Chrysler Automobiles (FCA), then its compatriot Renault was reportedly not only about to seek a merger with FCA, but also with its alliance partner Nissan of Japan.
First reaction to these reports from investors, which appeared in the Wall Street Journal and the Financial Times, was incredulity, although the scope of the planning and the resultant theoretical automotive giant which could take on the likes of Volkswagen and Toyota was hugely impressive. The Wall Street Journal said PSA approached FCA earlier this year about a merger, but were no longer talking about the matter. The FT report on Renault seeking a merger with Nissan and FCA was published Wednesday.
Reuters’ Breaking Views column did its best to take the possibilities seriously.
“Fiat Chrysler Automobiles might gain from playing an M&A (mergers and acquisitions) waiting game. Already the subject of interest from Peugeot of France, the $24 billion carmaker could face a bid from a merged Renault-Nissan, the Financial Times reported on Wednesday. Such a deal would be tricky and take time. But patience could give FCA better options to solve its tech and Asian headaches,” Breaking Views columnists Lisa Jucca and Liam Proud said.
FCA was weak in Asia and electric cars, two strengths of the Renault Nissan alliance, but PSA couldn’t bring much to the table in these areas, according to the columnists, and they pointed out that the first stage of such a deal, bringing together Nissan and Renault, was a huge initial hurdle. Ever since the removal of former CEO Carlos Ghosn, who wanted a more formal merger with Nissan, the future of the alliance has been in question. Nissan owns a 15% non voting stake in Renault while the French company controls 43% of Nissan.
Renault took control of an ailing Nissan in 1999, and the Japanese company is now more valuable on the stock market, and wants the relationship to be more equal. That means concessions from the French government, which owns 15% of Renault.
Bernstein Research analyst Max Warburton thinks the Renault-Nissan-FCA is a non starter because it is based on outdated thinking that bigger and bigger is always best.
“This idea is half-baked, politically almost impossible to deliver and even if achieved, the resulting company would be unmanageable. We hope it is a banker’s fantasy rather than a serious proposal from the key decision makers. Both Renault and FCA (shares) are trading up today. We see little basis for this response as we see the probability of this deal – at least as described – as very low. If we ever were to see RNO-Nissan-FCA come into existence, we’d be bearish on its prospects,” Warburton said.
Warburton said the idea of a merger between Renault and Nissan ignored much of the recent history of mistrust.
“We’d describe hopes of a functional Renault-Nissan merger as delusional. The idea that Renault and Nissan could merge and then add FCA too looks wildly ambitious: it ignores national sensitivities, human motivations and the poor history of M&A and scale in the auto industry,” Warburton said.
Warburton pointed out the poor record of big automotive mergers like Daimler-Chrysler and BMW-Rover. A breakup of the Renault Nissan alliance was more likely than a merger, and then Renault would be a more viable partner for FCA. A deal with PSA would make more sense for FCA, which doesn’t have much electric technology or Asian presence to offer, but does have a proven leader in Carlos Tavares.
The pursuit of scale has been exaggerated, Warburton said, and electrification reduces the need.
Breaking Views added to the list of negatives, saying any deal between Renault, Nissan and FCA would mean cuts in production and employees in Europe.
“European layoffs would not go down well with Italy’s anti-austerity government, nor with France’s “yellow vest” protesters. But those concerns are also a potential obstacle to a more immediate deal with Peugeot Chief Executive Carlos Tavares,” the columnists said.
FCA CEO Mike Manley said at the Geneva auto show earlier this month that he was looking for cooperation or partnership deals that would improve the company, but gave no details.