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Abu Dhabi, UAESunday 9 December 2018

Nissan and Renault may seal 20-year alliance with merger

Deal would create a single stock as an unprecedented shift toward electric and shared cars transforms the industry

Carlos Ghosn, chairman and CEO of Nissan and Renault, is likely to be the head of a merged Renault-Nissan company. Patrick T Fallon/Bloomberg
Carlos Ghosn, chairman and CEO of Nissan and Renault, is likely to be the head of a merged Renault-Nissan company. Patrick T Fallon/Bloomberg

Renault and Nissan are in talks to merge, seeking to solidify their two-decade-old alliance under a single stock as an unprecedented shift toward electric and shared cars transforms the industry.

A deal would end the current alliance between the companies and marry them as one corporation. Renault currently owns 43 percent of Nissan while the Japanese carmaker has a 15 percent stake in its French counterpart. Carlos Ghosn, the chairman of both companies, is driving the negotiations and would run the combined entity.

A merged giant would be a more formidable rival for Volkswagen and Toyota, allowing the partners to better pool resources as the industry shifts toward new-energy vehicles, autonomous driving and car-sharing services. While the alliance of Renault and Nissan has brought savings, the fragmented ownership structure has prevented the companies from reaping full benefits from their union.

“Size matters in the auto industry,” said Janet Lewis, an analyst at Macquarie in Tokyo. “The concern has always primarily been the French government, and somewhat Japan, because both France and Japan like to keep their national champions.”

The parties are discussing a transaction in which Nissan would essentially give Renault shareholders stock in the new company, the people said. Nissan shareholders would also receive shares in the new company in exchange for their holdings, they said. The automaker may maintain headquarters in both Japan and France.

Renault shares jumped as much as 8.3 percent, hitting the highest intraday level in more than a decade. They were up 5.8 percent at the market close in Paris, giving the company a market value of about €29 billion ($36 billion). Nissan shares rose 0.5 percent in Tokyo on Friday, giving the company a valuation of about 4.6 trillion yen ($44 billion).

Getting a deal done could, however, prove very difficult. The French government owns 15 percent of Renault and may be reluctant to relinquish control over its stake or have its position watered down. Both the French and Japanese governments would also have to approve a deal and may have strong opinions on where the combined company is domiciled.

One possibility would be to base the company in London or the Netherlands, where cross-Atlantic carmaker Fiat Chrysler has its corporate charter. Fiat Chrysler maintains headquarters in both Italy and the US.

No final decisions have been made and the talks, which have been ongoing for several months, may not result in a deal, they said.

A spokesman for the Renault-Nissan alliance said the group doesn’t comment on rumours and speculation, while a spokesman for the French finance ministry declined to comment. Representatives for Yokohama, Japan-based Nissan and Renault also declined to comment.

Mr Ghosn has previously pledged to cement Renault’s partnership with Nissan, saying in February that the companies would devise a plan to “make the alliance irreversible.” The 64-year-old relinquished the chief executive officer role at Nissan last year to focus on the partnership.

The companies are seeking to double synergies to €10 billion by 2022 from 2016. In April, Mitsubishi – in which Nissan is the largest shareholder – will further integrate with the alliance by joining a shared parts-purchasing organization.

The alliance forecasts unit sales of 14 million units by 2022, compared with 10.6 million last year. Volkswagen, the world’s largest carmaker, sold 10.7 million vehicles last year, while Toyota sold 10.4 million.

“To compete against the Toyotas, Renault-Nissan-Mitsubishi very much has to do it as one big group,” Macquarie’s Lewis said.

While the companies have claimed a multitude of benefits from their partnership, its staying power could be complicated until imbalances in the companies’ ownership structures are resolved.

Mr Ghosn reiterated last month that Japan wouldn’t agree to a tighter structure if France remains a shareholder. He also said he isn’t trying to convince the French state to reduce its stake in Renault.

“They decide to be here or to get out,” he said. “Frankly, I don’t even open this subject. I just consider that I have the shareholders that I have and I try to satisfy them in the best way possible and as much as possible make sure that they understand our strategy and appreciate our results.”