Fiat Chrysler Has Proposed A €32.6 Billion Merger With Nissan and Renault

By Amit Chowdhry ● May 27, 2019
  • Fiat Chrysler has made a €32.6 billion all-share merger proposal with Nissan and Renault
  • This would make the combined companies the third largest automaker in the world (based on production)

Fiat Chrysler has made a massive €32.6 billion all-share merger proposal with Nissan and Renault — which would create the third largest automaker in the world (based on production) behind Volkswagen and Toyota.

As part of the deal, Fiat Chrysler (FCA) and Renault would both each own 50% of the combined companies. And it would be larger than General Motors since it would have a combined sales of 8.7 million vehicles per year and combined annual revenues of €170 billion.

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If the deal does go through, the differences in market value would mean that FCA shareholders would receive a €2.5 billion dividend.

One of the biggest reasons for the proposed merger is to combine forces in order to remain competitive against the emergence of electric vehicles and autonomous vehicles. FCA is partially involved in the self-driving market as it supplies vehicles to autonomous car company Waymo.

“The combination would be highly value accretive for both FCA and Groupe Renault shareholders, delivering in excess of €5 billion of estimated annual run rate synergies, incremental to existing Alliance synergies. These synergies would arise principally from the convergence of platforms, the consolidation of powertrain and electrification investment and the benefits of scale,” said FCA in a statement. “FCA estimates based on its experience, that approximately 90% of synergies would come from purchasing savings (~40%), R&D efficiencies (~30%), and manufacturing and tooling efficiencies (~20%). Included in these estimated savings would be the potential to reduce the combined number of vehicle platforms by approximately 20% and engine families by approximately 30%. The full run rate of estimated synergies is expected to be achieved by the end of year six following closing, with about 80% achieved in year four. Taking into account the impact of the approximately €3-4 billion in cumulative implementation costs, it is estimated that the synergies would be net cash flow neutral in year one and positive from year two onward.”

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Renault and Nissan have had a strategic partnership since 1999. Mitsubishi was also added to the partnership several years later. The Renault–Nissan–Mitsubishi Alliance together were selling about 1 in 9 vehicles worldwide as of last year. This strategic partnership was not set up as a merger or acquisition. These companies are simply connected through a cross-sharing agreement.

However, the stability of the Alliance’s shareholding agreement and long-term existence has been questionable ever since Alliance chairman and CEO Carlos Ghosn was arrested in Japan for allegedly misreporting his compensation. Ghosn is also known as the architect of the Alliance.

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FCA Chairman John Elkann and CEO Mike Manley have both reportedly made several trips to Paris since the beginning of the year in order to try and make deals. For example, FCA has also reportedly held talks with the PSA Group, which is the parent company of the Peugeot carmaker brand.