Fiat Chrysler proposes 50:50 merger with Renault

Fiat Chrysler Automobiles NV on Monday submitted a non-binding letter to the board of Groupe Renault NV proposing a 50:50 combination of their respective businesses.

The FCA proposal follows initial operational discussions between the two companies to identify products and geographies where they could collaborate, particularly as they develop and commercialise new technologies and capture scale for new opportunities in areas like connectivity, electrification and autonomous driving.

The proposed combination would create a global automaker, preeminent in terms of revenue, volumes, profitability and technology. The combined business would sell approximately 8.7 million vehicles annually, would be a world leader in EV technologies, premium brands, SUVs, pickup trucks and light commercial vehicles and would have a broader and more balanced global presence than either company on a standalone basis.

Under the terms of the proposal, shareholders in each company would receive an equivalent equity stake in the combined company. The combination would be carried out as a merger transaction under a Dutch parent company. 

The board of the combined entity would initially have 11 members, with the majority being independent and with equal representation of four members each for both FCA and Groupe Renault, as well as one nominee from Nissan. 

Further, there would be no carryover of existing double voting rights. However, all shareholders would have the opportunity to earn loyalty voting rights from the completion of the transaction under a loyalty voting programme. The parent company would be listed on the Borsa Italiana (Milan), Euronext (Paris) and the New York Stock Exchange.

The benefits flowing from the combination of the two businesses would be shared, 50 per cent by current FCA shareholders and 50 per cent by current Groupe Renault shareholders. Before the transaction is closed, to mitigate the disparity in equity market values, FCA shareholders would also receive a dividend of €2.5 billion. In addition, prior to closing, there would be a distribution of Comau’s shares to FCA’s shareholders or an incremental €250 million dividend if the Comau spin-off does not occur.

The combination would create a brand portfolio that would provide full market coverage with a presence in all key segments from luxury/premium brands, such as Maserati and Alfa Romeo, to the strong access brands of Dacia and Lada, and would include the well-known Fiat, Renault, Jeep and Ram brands as well as commercial vehicles. 

Groupe Renault has a strong presence across Europe, Russia, Africa and Middle East, while FCA is uniquely positioned in the high margin segments in North America and is a market leader in Latin America. 

FCA is developing capability in autonomous driving, which includes partnerships with Waymo, BMW and Aptiv, while Groupe Renault has decade of experience in EV technology where it is the highest selling EV OEM in Europe. Groupe Renault also has a well-established and profitable financing business (RCI Banque).

The combination is expected to deliver incremental synergies in excess of €5 billion annually, principally from the convergence of platforms, consolidation of powertrain and electrification investment and the benefits of scale. 

FCA estimates based on its experience, that approximately 90 per cent of synergies would come from purchasing savings (~40 per cent), R&D efficiencies (~30 per cent), and manufacturing and tooling efficiencies (~20 per cent). Included in these estimated savings would be the potential to reduce the combined number of vehicle platforms by approximately 20 per cent and engine families by approximately 30 per cent. 

The full run rate of estimated synergies is expected to be achieved by the end of year six following closing, with about 80 per cent 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.

Geographically, based on FCA and Groupe Renault’s 2018 global sales, the combined company would be No 4 in North America, No 2 in EMEA and No 1 in Latin America and would have the increased resources necessary to grow its footprint in the APAC region. On a simple aggregated basis of 2018 results, the combined company’s annual revenues would be nearly €170 billion with operating profit of more than €10 billion and net profit of more than €8 billion.

While the proposal focuses on a combination of FCA and Groupe Renault, FCA said, it looked forward – as part of a combined enterprise with Groupe Renault – to working with Groupe Renault’s current alliance partner companies Nissan and Mitsubishi on ways to create additional value for all alliance members. 

FCA and Groupe Renault combination together with its Nissan and Mitsubishi partners would be the largest global OEM alliance, selling more than 15 million vehicles annually.

The additional synergies stemming from the merger of FCA and Groupe Renault that are expected to accrue to Nissan and Mitsubishi purely as members of the Alliance are estimated to be worth an incremental €1 billion annually.

While there is no certainty that the FCA proposal will result in a transaction, the board of FCA has strongly supported and approved the proposal, which will now be reviewed by the Groupe Renault board of directors. The definitive agreements for the proposed combination are subject to negotiation and to final review and approval by the FCA and Groupe Renault boards.

Completion of the proposed combination would also be subject to customary closing conditions, including approval by each company’s shareholders, as applicable, and the satisfaction of antitrust and other regulatory requirements.