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Fiat Chrysler proposes merger with Renault to create 3rd-largest carmaker

Fiat Chrysler Automobiles NV on May 27 submitted a proposal to Renault SA for a "transformative" all-share merger, confirming earlier reports that it is in talks with the French carmaker for a merger of equals, or a 50/50 combination.

The Italian-American carmaker said that if completed, the combination would create the third-largest global automotive manufacturer with annual revenues of nearly €170 billion, operating profit of more than €10 billion and net profit of more than €8 billion. The merged entity would also result in annual sales of 8.7 million vehicles from brands such as Maserati, Alfa Romeo, Dacia, Lada, Fiat, Renault, Jeep and Ram.

Shares in Fiat Chrysler were trading up 15% at Milan stock exchange during early morning market hours May 27, while Renault shares were also up 15% in Frankfurt. The surge took the companies' combined market cap to €34.24 billion.

The Jeep maker said the proposal follows initial talks with Renault over certain products and markets where they could possibly collaborate.

"These discussions made clear that broader collaboration through a combination would substantially improve capital efficiency and the speed of product development," Fiat Chrysler said.

"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."

In a separate announcement the same day, Renault confirmed that it received a proposal from Fiat Chrysler, saying its board will meet to discuss the offer.

Under Fiat Chrysler's proposal, the two carmakers would equally hold 50% each of the combined entity, with shareholders of both companies receiving an equivalent equity stake in the yet-to-be-named entity. The proposed deal is expected to be carried out as a merger transaction under a Dutch parent company, which will be listed on Milan's Borsa Italiana, Paris' Euronext and on the New York Stock Exchange.

In addition, there would be no carryover of existing double voting rights, and all shareholders would have the opportunity to earn loyalty voting rights from the completion of the transaction under a loyalty voting program, according to the announcement.

Fiat Chrysler's statement also confirms earlier reports that it would join Renault's existing automotive alliance with Nissan Motor Co. Ltd. and Mitsubishi Motors Corp. The company's proposal calls for the appointment of 11 board members, majority of which will be independent, and with equal representation of four members each from both Fiat Chrysler and Renault, as well as one nominee from Nissan.

Fiat Chrysler said the combined business would result to annual run rate synergies in excess of €5 billion, in addition to the existing Renault-Nissan-Mitsubishi Alliance. The carmaker said the synergies would come from the convergence of platforms, the consolidation of powertrain and electrification investment, as well as the benefits of scale.

Additional synergies of €1 billion annually as a result of the proposed merger are also expected to accrue to Nissan and Mitsubishi.

Fiat Chrysler said there would be no plant closures as a result of the transaction and that the new business would spend more in common global vehicle platforms, architectures, powertrains and technologies.

A combined company would offer a brand portfolio spanning all key automotive segments and will have a strong presence in all geographies, Fiat Chrysler said. Groupe Renault has a strong presence across Europe, Russia, Africa and Middle East and FCA is a leader in the high-margin SUV and truck segments in North America and is a market leader in Latin America.

Fiat Chrysler added that its shareholders would receive a dividend of €2.5 billion to mitigate the difference in equity market values. Shares of Fiat Chrysler's robotics arm, Comau SpA, or an incremental €250 million dividend would also be distributed to Fiat Chrysler's shareholders prior to the closing. The incremental dividend would only be distributed if the Comau spinoff does not proceed.

FCA said that the proposal is subject to negotiation and to final review and approval by the FCA and Renault boards.