The Fiat Chrysler-Renault merger is a win-win to many but there are also some issues to consider.
According to Reuters, Fiat Chrysler (FCA) proposed a $35 billion tie-up with Renault on 26 May to address the high cost of regulatory and technological amendments.
Winners of Fiat Chrysler-Renault $35 billion merger
If pushed through, the new entity would become the third largest car maker in the world. That will make the merger a game changer to an industry currently dominated by Japan’s Toyota and Germany’s Volkswagen.
The report said that Renault is considering FCA’s proposal as ‘friendly’ and is now studying it with interest.
The investors welcomed the development as evident with the 10% surge in the shares of both companies. They are expecting an expanded business capacity of over 8.7 million annual productions and $5 billion annual savings.
The Italian-American FCA also pitched an all-share merger under a listed Dutch holding company. It is a win-win to investors in each company as they would hold half of the newly merged group.
— Reuters Business (@ReutersBiz) May 28, 2019
According to sources, Renault chairman Jean-Dominique Senard would likely become the CEO of the new entity while Agnelli family scion John Elkann will become the chairman
Fiat Chrysler-Renault $35 billion merger brings big complications
While the proposed merger is great news to some, analysts warned of ‘big complications’ as brought by potential opposition from workers and politicians to any cutbacks, the role of the French state as the largest shareholder of Renault, and the existing tie-up of the company with Nissan.
Arndt Ellinghorst, an analyst at Evercore ISI said that the market will be cautious with the proposed numbers as there has been a lot of promises made before.
He added that there is not a single merger of equals that succeeded in auto industry.
Matteo Salvini, Deputy Prime Minister of Italy, said that while the proposed merger could benefit their country, preserving jobs is crucial too.
— CBS News (@CBSNews) May 28, 2019
Salvini did not provide comments on the 15% state of the French government in Renault. A lawmaker from the ruling League party, however, noted that Rome might seek a stake in the new entity to balance France’s holding.
The deal may also significantly affect the more than two-decade alliance of Renault with Nissan, which was already put to the test following the arrest and ouster of ex-chairman Carlos Ghosn in 2018.