Autos

Fiat Chrysler submits proposal for a merger with Renault

Key Points
  • The combined business would be owned 50/50 between shareholders of FCA and Groupe Renault.
  • The joint organization would produce estimated sales of 8.7 million vehicles a year.
  • Shares in Fiat Chrysler and Renault have jumped 13% and 11.5% respectively.
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Fiat Chrysler submits proposal for merger with Renault

Fiat Chrysler and Renault, two automakers looking to curb costs producing vehicles and pool resources for developing the next generation of automobiles, are planning a merger to create the world's third largest automaker.

According to a statement from Fiat Chrysler Automobiles, the combined business would be owned 50/50 between shareholders of FCA and Groupe Renault. A board of governors would hold a majority of independent directors.

Shares in Fiat Chrysler and Renault jumped 13% and 11.5% respectively.

The merger still requires approval by the boards of both automakers.

Reuters reported Monday that Renault board members will meet informally within days with the intent to make a decision early next week on whether to proceed with the proposed full merger.

The joint organization would produce estimated sales of 8.7 million vehicles a year and would be considered the world's third largest car manufacturer.

Fiat Chrylser said the combined entity would generate savings of 5 billion euros annually ($5.6 billion) and be "carried out as a merger transaction under a Dutch parent company."

The press release from Fiat Chrysler added that there would be no plant closures as a reults of the tie-up and the union should provide an opportunity to lead in the development of electric and autonomous vehicles.

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During Fiat Chrysler's most recent earnings call, CEO Mike Manley was asked about the possibility of merging with another automaker and told analysts. "We are going into an environment where there are going to be opportunities."

On Monday, Manley sent an employee e-mail regarding the proposed merger with Renault: "In Groupe Renault we found a like-minded partner who sees the future as we do. We've worked well to get this far, and this would truly be a merger of like-minded businesses, on an equal footing to create a world-leading company. To us, this deal has the potential to add value across the board – for FCA, Groupe Renault and all our stakeholders as well as for the Alliance partners. It will also signal to the sector what can be achieved if one is bold – and to that end, while there is no certainty of a deal, we aim to move as quickly as possible to secure a final agreement with Groupe Renault."

Fiat Chrysler's partnership with Renault is completely separate from the Nissan-Renault-Mitsubishi alliance.

For Renault, the partnership with FCA renews speculation the French automaker's alliance with Japan-based Nissan may not last.

The two companies hold stakes in each other, but that alliance has been strained since the arrest of Nissan-Renault CEO Carlos Ghosn late last year. Ghosn has been charged in Japan with committing financial crimes while serving as CEO of Nissan, charges Ghosn and his lawyers vehemently deny.

Last year, Fiat Chrysler sold 4.85 million vehicles worldwide, with the vast majority being sold in North America where Jeep and Ram Trucks are two of the most popular brands. Meanwhile Renault sold 3.81 million vehicles in 2018, with most of its business happening in Europe.

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