Fiat offers joint venture to Renault. Will they create a new automotive giant?
Italian Fiat Chrysler offered a merger to the French Renault group. Formally, a new company would be created with a market value of 32 billion euros, which would be half owned by Fiat shareholders and half by Renault shareholders. The French agreed to start negotiations. Also, the government in Paris welcomes the Italian proposal. If the merger became a reality, the third largest car maker in the world would arise. And if we add to the deal Nissan and Mitsubishi, with whom Renault is already in the alliance, the entity would be a global leader, jumping over the Volkswagen Group and Toyota.
It is easy to explain why the markets reacted with euphoria for information about a possible merger of Fiat and Renault. Fiat’s shares went up by 19 percent, and Renault gained 17 percent (most since 2009). Interestingly, also other companies from the automotive industry are growing up on European stock exchanges (including Volkswagen, BMW and Daimler).
The merger proposal came from Fiat. The company said in its statement that the planned merger will create “a global leader in the rapidly changing automotive industry with a strong position in the world of changing technologies, including the segment of electric and autonomous vehicles”.
The plan assumes that a special company registered in the Netherlands would be established. Half of the shares would belong to Fiat and half to Renault. The company would be listed on the stock exchanges in Milan, Paris and New York. Italians, as part of the creation of a new entity, also do not close the door to Renault’s allies, which are Nissan and Mitsubishi.
According to Fiat, the merger would lead to the emergence of one of the leaders in the automotive industry with 8.7 million vehicles sold. BBC places such entity in the third place on the global map of automotive concerns.
For comparison, the entire Volkswagen Group sold 10.8 million vehicles last year and the Toyota Group 10.5 million units. In turn, the combined Renault-Nissan-Mitsubishi forces sold 10.4 million vehicles last year. If we combined the last figure with the data for the Fiat Chrysler concern (4.8 million vehicles sold) – in total, such entity would sell over 15 million vehicles annually.
The combined revenues of the combined Fiat and Renault would amount to 170 billion euros, and the net profit could be 8 billion euros. The cost savings for dividing Fiat costs are estimated at 5 billion euros.
Global automotive concerns are increasingly inclined towards mergers. Car makers around the world feel strong pressure to invest heavily in new technologies and adapt to trends such as car sharing. Added to this is the decline in sales of new vehicles in the world’s largest markets – in China, the United States and Europe.
New participants also appeared on the market. And even if they do not ultimately win the clash with traditional concerns, Tesla is currently setting trends for electric vehicles in a way, and Amazon and Google Waymo have a lot of capital for technology research.
According to Bloomberg, Fiat and Renault may induce other events to the alliance. The Turin concern after the death of the legendary president Sergio Marchionne, who led Fiat straight and took over American Chrysler, is looking for a business partner. The media wrote about talks with the French PSA (owner of Peugeot, Citroën and German Opel brands), but nothing came of it.
At the end of March, the Financial Times wrote that Renault, after a possible takeover of Nissan, could buy Fiat in the next step. The goal of such a step, of course, was the desire to jump over the Volkswagen and Toyota Group. Now, interestingly, Fiat is putting out their offer on the table.
