Fiat Chrysler puts merger offer to Renault board

0
Share

MILAN/PARIS (Reuters) – Fiat Chrysler has made a “transformative” merger proposal to Renault, the Italian-American carmaker said, in a deal that would create a new third-ranked global manufacturer.

The plan, finalised in overnight talks with Renault, was being discussed at a meeting of the French group’s board early on Monday, and sent shares in both companies sharply higher.

The deal would create a carmaker selling 8.7 million vehicles annually with a strong presence across key regions, automotive markets and technologies, FCA said. It would generate 5 billion euros (4.40 billion pounds) in estimated annual savings.

The “broad and complementary brand portfolio would provide full market coverage, from luxury to mainstream,” FCA added.

If successful, the tie-up would alter the competitive landscape for rival carmakers from General Motors to Peugeot maker PSA Group, which recently held its own inconclusive talks with FCA.

It could also have profound repercussions for Renault’s 20-year-old alliance with Nissan, already weakened by the crisis surrounding the arrest and ouster of former chairman Carlos Ghosn late last year.

Milan-listed Fiat Chrysler shares jumped 19% in early trade, while Renault stock leapt 17%. PSA shares fell 2.5%.

“FCA fits as well with Renault as it does with PSA,” Jefferies analyst Philippe Houchois said in a note after news of the deal talks broke.

The FCA-Renault plan would see the two carmakers merged under a listed Dutch holding company. After payment of a 2.5 billion-euro dividend to current FCA shareholders, each investor group would receive 50 percent of stock in the new company.

It would be chaired by John Elkann, head of the Agnelli family that controls 29 percent of FCA, sources familiar with the deal talks told Reuters. Renault chairman Jean-Dominique Senard would likely become CEO, one said.

FCA-Renault, like almost every possible automotive pairing, had been studied intermittently for years by dealmakers. But the fractious relations between Ghosn and FCA’s late CEO Sergio Marchionne made constructive merger talks impossible until after Marchionne’s sudden death last July, banking sources said.

Pressure for consolidation among carmakers has grown with the challenges posed by electrification, tightening emissions regulations and expensive new technologies being developed for connected and autonomous vehicles.

“The case for combination is also strengthened by the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry,” FCA said.

But the deal still faces political and workforce hurdles in Italy, and potentially also in France. Most of FCA’s European plants are running below 50% capacity.

Fiat said the planned cost savings would not depend on factory closures.

“The market will be careful with these synergy numbers as much has been promised before and there isn’t a single merger of equals that has ever succeeded in Autos,” Evercore ISI analyst Arndt Ellinghorst said in an email.

Investors are likely to remain wary of the execution risks of a French-Italian-U.S. tie-up, he added, “even with fewer big egos involved”.

The French government, Renault’s biggest shareholder with a 15% stake, supports the merger in principle but will need to see more details, its main spokeswoman said on Monday.

France will be “particularly vigilant regarding employment and industrial footprint,” another Paris official said – adding that any deal must safeguard Renault’s alliance with Nissan, which had recently rebuffed a merger proposal from the French carmaker.

The Italian government may also seek a stake in the combined group to balance France’s holding, a lawmaker from the ruling League party said on Monday.

Anticipating such sensitivities, FCA stressed “new opportunities for employees of both companies” under the merger.

“The benefits of the proposed transaction are not predicated on plant closures, but would be achieved through more capital-efficient investment in common global vehicle platforms, architectures, powertrains and technologies,” it said.

Nissan, which is 43.4%-owned by Renault, would be invited to nominate a director to the 11-member board of the new combined company, under the plan presented on Monday.

As alliance partners, Nissan and its affiliate Mitsubishi would benefit from an estimated 1 billion euros in annual savings from the merger, FCA also said.

Air France plane landing
Image copyrightREUTERS

France is set to introduce an “eco-tax” for all flights from French airports, the government has said.

The tax is expected to raise about €180m ($202m; £162m) from 2020, said Transport Minister Elisabeth Borne.

The amount of the tax will depend on the type of ticket being bought.

Economy class tickets on flights within France or the EU will have a tax of €1.50 imposed. Business class tickets for flights out of the EU will have the highest tariff of up to €18.

“We have decided to put in place an eco-tax on all flights from France,” Ms Borne said during a news conference on Tuesday.

The tax will only apply to outgoing flights and not to those flying into the country.

Ms Borne said the money raised by the tax will be invested in in less-polluting transport, such as rail.

Pollution set to grow

The French government has tried to tighten environmental regulation, but last year abandoned its plans for fuel tax rises after the widespread protests from the “yellow vests” (“gilets jaunes”).

The airline industry is also introducing its own initiatives to try and reduce pollution.

The Carbon Offsetting and Reduction Scheme for International Aviation requires airlines to monitor and report their emissions from this year.

The full scheme will start in 2021.

The European Union says that without any action, CO2 emissions from aviation are set to grow by up to 300% by 2050.

Sterling

Sterling surged on Friday to a three-month high amid investor optimism about a last-minute Brexit deal between Britain and the European Union.

Against the dollar the pound rose 1.9% to $1.2682, and against the euro was up 1.67% at €1.1489.

The currency has rallied more than 3% since Thursday, its biggest two-day gain since before the June 2016 referendum on leaving the EU.

Many UK-focused shares also surged, with Royal Bank of Scotland up 11.6%.

On Friday, EU Brexit negotiator Michel Barnier said he had had a “constructive” meeting with UK Brexit secretary, Stephen Barclay. That followed talks between the Irish and British prime ministers on Thursday, after which a joint statement spoke of “a pathway to a possible deal”.

Deutsche Bank’s foreign exchange strategist George Saravelos said he was “turning more optimistic on Brexit” and no longer negative on the pound, while JPMorgan said the Anglo-Irish statement may have “changed everything”.

“The chances of a deal seem to have improved and the pound has moved accordingly but hurdles still remain,” said Dean Turner, economist at UBS Wealth Management. “Time to thrash out the details of the deal are tight, and then there is the question of parliamentary approval.”

Other analysts cautioned that trading on the financial markets was thin, leading to higher volatility and a sharp jump in some share prices. Meanwhile, another analyst said the price surges were probably due to algorithms driving the market.

Following the more confident noises coming from Brussels, London and Dublin, there were hopes that a meeting between British and EU negotiators will pave the way for a Brexit transition deal at a summit on 17-18 October.

The rally in sterling undermined the UK’s export-heavy FTSE 100 stocks, and the blue chip index itself was up under 0.9%.

But shares exposed to UK growth and consumers soared. Housebuilders Persimmon, Barratt and Taylor Wimpey rose more than 10%. Next rose nearly 8.5%, and ITV more than 6%. The more UK-focussed FTSE 250 index was up more than 4%.

The yield on 10-year British government bonds was on track for its biggest three-day rise since 2017