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Analysts hope for revival of Fiat Chrysler-Renault merger talks

The Market Intelligence Platform


Analysts hope for revival of Fiat Chrysler-Renault merger talks

The collapsed merger between Renault SA and Fiat Chrysler Automobiles NV offered both automakers such a compelling solution to their respective weaknesses that some observers harbor hopes it may later be revived.

Fiat Chrysler's perceived impatience in the short-lived negotiations means it leaves behind an opportunity to update an aging product range and introduce urgently needed electrified powertrains through cooperation with a partner several years further ahead in that field. Meanwhile, Renault, which is predominantly focused on passenger cars in the European and Latin American markets, misses out on the financial stability FCA has amassed through a strong position in the fast-growing North American SUV and pick-up segments with its Jeep and Ram brands.

"The two statements were very polite and left the door open and left clear that there is a big industrial interest in coming closer," said Pierre-Yves Quemener, a Paris-based equities analyst at MainFirst Group, referring to the statements both automakers issued on June 6 announcing with apparent regret that Fiat Chrysler had withdrawn the merger proposal.

"For the moment it's under a bushel. It's not dead but they won't return to it next week. Maybe in three or six months, why not? But everyone will have had to meet around the table to have an agreement before there would be any official communication from the companies," Quemener said.

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The withdrawal of Fiat Chrysler's proposal, which Renault was reportedly preparing to accept, has also cast a spotlight on the influence the French government wields at the company and whether its broader priorities, including keeping French plants open and protecting jobs, could leave Renault hamstrung in a rapidly changing industry.

"The perception from the outside is that it is difficult to do business with Renault because the French state will stick its nose in," Quemener said.

Both companies were seeking ways to revive the merger plan, Reuters reported on June 10, citing several sources close to the companies. This would entail Renault reducing its 43.4% stake in Nissan Motor Co. Ltd. to gain the Japanese carmaker's support for the deal, the report said.

Renault and Nissan are partners in a cost-saving alliance that has come under heavy strain amid differing visions for their cooperation. Nissan has reportedly balked at Renault's suggestion of a merger in the aftermath of the arrest of Nissan chairman and former Renault CEO Carlos Ghosn, who is facing charges in Japan on suspicion of misuse of company funds. The relationship deteriorated further on June 10 when Renault said it would abstain from voting on governance overhauls at Nissan, effectively blocking the proposals it had previously supported.

"I think the [Renault] group can survive but it will be very dependent on Nissan, which is 1.7 times bigger, and its goodwill in the alliance," Quemener said.

Renault has faced headwinds from its withdrawal from Iran amid international sanctions and a slowing market in Russia, which has hit sales of its subsidiary AVTOVAZ, owners the Lada brand, Quemener said.

Another France-based analyst said they were "shocked" that Fiat Chrysler did not give Renault more time to reflect on the offer after having walked away when the French government requested a few days to liaise with Nissan to seek its consent.

While the North American side of the Fiat Chrysler business has flourished, the neglect of Italy's Fiat brand is now very apparent: its car range has been pared back to just a few mainstream models, the analyst said.

"With Fiat, it's nothing now in Europe. It's big in Brazil. The [FCA] group should be called Jeep-Ram or JRA instead," they said.

While Renault is now the more prominent brand of the two on European turf, the failed merger means Renault will also forgo an opportunity to put right what both analysts see as an unjust value placed on the company. After subtracting the value of Renault's stake in Nissan along with a 3.1% stake in Daimler AG and its financing arm, RCI, Renault's core operations are valued at or less than nothing.

"Renault has never managed to achieve a proper valuation in the market and the deal could have been a chance for this. It was maybe one way to be valued properly," the analyst said.