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Renault and Fiat Chrysler merger: What's at stake?

2019-06-04 08:46
renault fca merger

Image: Reuters

A merger of France's Renault with the Italian-US group Fiat Chrysler would forge a far-reaching automotive giant, requiring management to bring together a range of disparate brands, factories and supply lines.

Here's a look at what's at stake if the two rivals decide to join forces, and the potential payoff.

How would the merger work? 

Fiat Chrysler has proposed a 50-50 deal under a Dutch holding company most likely based in Amsterdam, where Fiat already has its corporate headquarters.

To ensure a merger of equals, Fiat has said it wants to first pay its shareholders a special dividend totalling €2.5-billion, to compensate for Renault's smaller market capitalisation.

renault fca merger

An 11-member board would have five directors from each firm, plus one from Renault's alliance partner Nissan.

The combination would dilute the French government's holding in Renault from 15% currently to 7.5% in the new company.

Fiat's CEO Mike Manley told employees in a letter that if approved, a merger could take more than a year to finalise.

What's the payoff?

The combined firm would create the world's third-largest automaker, with combined revenue of nearly €170-billion from 8.7-million vehicles sold each year.

Overall it would have some 382 000 employees, and Fiat has pledged that no factories would be shuttered.

"The benefits... are not predicated on plant closures, but would be achieved through more capital efficient investment in common global vehicle platforms, architectures, powertrains and technologies," Fiat said.

By sharing engines, chassis and other components, the companies target five billion euros in annual cost savings and other synergies -- though the impact wouldn't be fully felt for at least four years.

The implementation costs to mesh the two firms' operations are expected to reach €3-4-billion.

But if successful, the merger could bolster profit margins in the highly competitive auto industry: Currently Renault's operating profit is 6.3% of its revenue, while Fiat's is just 3.7%, according to the Centre for Automotive Research.

In other words, Renault earns an average of €930 per vehicle sold, while Fiat gets €848.

Who brings what to the table? 

Each company brings its own strengths: Fiat Chrysler owns luxury brands like Maserati and Alfa Romeo as well as heavy-duty pick-ups and SUVs (Jeep, Ram trucks) alongside its namesake mass-market brands.

Renault, for its part, was one of the first carmakers to invest heavily in electric and hybrid models -- key technology as Europe moves to sharply curtail auto emissions.

But even though Fiat has lagged behind in electric motors, it has struck partnerships with Waymo (ex-Google Car) and Germany's BMW on self-driving research.

Each firm could also help the other expand geographically. Fiat has a strong presence in North America, while Renault has moved into Russia and Latin America.

And Renault offers access to Japan and other parts of Asia via its cross-shareholdings in Nissan and Mitsubishi.

Fiat has said their participation in the merger project could generate a further one billion euros in synergies each year.

Together, they would have annual vehicle sales of 15-million, vaulting them past industry leaders Volkswagen and Toyota, which both sell around 10.6-million cars a year.

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