Fiat Chrysler Automobiles outlined a detailed plan Monday to merge with French automaker Renault, which responded “with interest.”
The news caps a whirlwind weekend of reports about the extent of talks between the automakers and leaves open the possibility of a wider alliance with Nissan that would reshape the global auto industry.
An FCA news release said the company had submitted a “nonbinding” proposal to Renault’s board for a “transformative merger,” which would be half owned by FCA and half owned by Renault. It also said no plant closures would result from the deal, asserting that benefits would come from savings on common vehicle platforms, powertrains and technologies.
FCA’s statement early Monday said: “The proposed combination would create a global automaker, preeminent in terms of revenue, volumes, profitability and technology, benefiting the companies’ respective shareholders and stakeholders. The combined business would sell approximately 8.7 million vehicles annually, would be a world leader in (electric vehicle) technologies, premium brands, SUVs, pickups and light commercial vehicles and would have a broader and more balanced global presence than either company on a standalone basis.”
Renault issued its own release after its board met to consider the proposal Monday, saying it would “study with interest the opportunity of such a business combination, comforting Groupe Renault’s manufacturing footprint and creating additional value for the alliance.”
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15 million vehicles
FCA, in its release, said it looks forward as part of the merger to working with Renault’s partners.
“The FCA and Groupe Renault combination together with Nissan and Mitsubishi partners would be the largest global (automaker) alliance, selling more than 15 million vehicles annually,” the release said, noting that the wider alliance could lead to $5.6 billion (5 billion euros) in savings.
The proposal calls for one Nissan nominee to be part of the new entity’s 11-member board, highlighting the potential connections to the Renault-Nissan alliance.
The plan says shareholders in each company would receive an equivalent equity stake in the combined company, and the combination, which would be listed on the Milan, Paris and New York stock exchanges, would be handled as a merger under a Dutch parent company.
Dividend for FCA shareholders
Before the deal closes, FCA said its shareholders would receive a $2.8 billion (2.5 billion euros) dividend “to mitigate the disparity in equity market values” as well as shares in Comau, an FCA robotics division, or a dividend if Comau is spun off.
The deal is likely to take more than a year to close because of its complexity.
The value of the combination is estimated at $37 billion. The release said the companies had combined 2018 revenues of $191 billion (170 billion euros) and net profit of $9 billion (8 billion euros). It also said the new entity would, in terms of sales, be No. 4 in North America, No. 2 in Europe and No. 1 in Latin America, with potential to grow its footprint in Asia. FCA currently makes the bulk of its profits in North America, specifically the United States where Renault does not have a presence.
Should the merger be approved, the two companies would join forces at a time of intense pressure and change in the global auto industry, which could hasten even more consolidation should FCA eventually fully join an alliance with Renault and its Japanese partners, Nissan and Mitsubishi. The alliance has faced recent uncertainty because of the ouster of and criminal charges against its former head, Carlos Ghosn, who maintains his innocence.
The proposed marriage, announced about two weeks before the 10-year anniversary of Chrysler’s 2009 bankruptcy, would join the Italian-American FCA, with its wide array of distinctive brands, including Jeep, Ram, Chrysler, Dodge, Fiat, Alfa Romeo and Maserati, and profitable North American operations, to Renault, with its connections to the Nissan alliance and noted electric vehicle strength, a plus in Europe.
FCA has its U.S. headquarters in Auburn Hills and is planning billions in investments in metro Detroit, including retooling its Jefferson North Assembly and turning the idled Mack Engine complex into an assembly plant for SUVs.
The UAW said it is monitoring the proposal for details.
Years of merger talk
The arrangement appears to end FCA’s lengthy search for a suitable match. Talks, speculation and even comments from Sergio Marchionne, the company’s late CEO, had put the automaker, at various times, in contention for tie-ups with a range of automakers in Europe, North America and Asia. Previous partner or merger suggestions had included China’s Geely, Germany’s Volkswagen and even General Motors to name a few.
A number of analysts had offered varying assessments of FCA connecting with Renault, assuming the arrangement eventually includes Nissan, ranging from positive to disastrous.
Despite the potential upside, analysts warned that managing a combination of cultures can be most problematic for companies.
“Of course the devil’s in the details, as the last ‘merger of equals’ involving Chrysler clearly illustrated,” said Karl Brauer, executive publisher of Kelley Blue Book and Autotrader, referring to the Daimler-Chrysler merger of 1998-2007.
“An FCA-Renault merger will be even more challenging to manage because it involves the U.S. and multiple European countries,” he said. “Add in the eroding alliance between Renault, Nissan and Mitsubishi and you’ve got three continents and four nations involved. It’s a powerful combination in theory, but aiming for a single, aligned automotive entity, with everyone rowing in the direction, might not be realistic.”
The FCA release offered a kind of rebuttal to that concern.
“FCA has a history of successfully combining (automakers) with disparate cultures to create strong leadership teams and organizations dedicated to a single purpose. Therefore, FCA’s board strongly believes that this combination, which would have the scale, expertise and resources to navigate the rapidly changing automotive industry, would create new opportunities for employees of both companies and for other key stakeholders,” the release said.
Contact Eric D. Lawrence: email@example.com. Follow him on Twitter: @_ericdlawrence.