If you’re going to be a CEO of a major car manufacturer, you’re going to have an ego and thick skin.
Sergio Marchionne, CEO of Fiat Chrysler Auto to his death, was credited with the turnaround of FCA. Marchionne was smart. Other CEOs didn’t like what he had to say, mainly because he was right and outspoken about the facts. Marchionne talked about mergers that needed to happen to keep profits up for all. I thought of him as the Italian Bob Lutz, another outspoken executive that knew the auto industry.
Carlos Ghosn is out of the auto industry as well, fighting for his freedom and his life as he once knew it, amid allegations of dastardly behavior.
While there is contemplation of a coup or covert action, Ghosn is out of the auto business. One has to wonder what Ghosn would think of FCA and Renault merging. Ghosn was the master of making mergers work until they didn’t work. Once the hero of Nissan his family is asking the United Nations to step in against Japan’s judicial persecution.
Mergers are tricky for exactly the same reason that confident CEOs succeed; ego and thick skin. The world has watched General Motors, and Ford Motor Company go through some profit marginalizing ventures and mergers under different CEOs. The auto group as a whole knew that Nissan/Renault was fast becoming a merger to contend with until it wasn’t. Would this FCA merger with Renault weaken Nissan?
Renault has put out a press release saying it is looking at a merger with FCA. Are you part of the conspiracy theory that thinks Ghosn is in so much trouble in Japan because he wanted a merger with Nissan and Renault and Nissan didn’t want the new merger? If so, you must be wondering what Nissan is thinking of Renault talking to FCA about merging and not including Nissan in the talks.
Carlos Ghosn would have been concerned about keeping secrets, especially at the beginning of a honeymoon. Here Ghosn is talking about mergers and working relationships with Chrysler.
The two egos are out of the auto industry, but I can still hear them both saying, I told you so.
Renault’s press release:
“Boulogne-Billancourt, Mai 27th, 2019 – Renault’s Board of Directors met today to examine the proposal received from FCA (Fiat Chrysler Automobiles) regarding a potential 50/50 merger between Renault S.A. and FCA.
After careful review of the terms of FCA’s friendly proposal, the Board of Directors decided to study with interest the opportunity of such a business combination, comforting Groupe Renault’s manufacturing footprint and creating additional value for the Alliance.
A further communication will be issued in due course to inform the market of the results of these discussions, in accordance with applicable laws and regulations.”
FCA press release:
FCA Submits Proposal For A Transformative Merger With Groupe Renault To Create Preeminent Global Automotive Group
* Combined business to be 50% owned by FCA shareholders and 50% by Groupe Renault shareholders – balanced governance structure and the majority of the Board of Directors is independent
* The combination would create the 3rd largest global OEM with 8.7m vehicle sales and a strong market presence in key regions and vehicle segments
* The broad and complementary brand portfolio would provide full market coverage, from luxury to mainstream
* The combined company would be a world leader in the rapidly changing automotive industry with a strong position in transforming technologies, including electrification and autonomous driving
* No plant closures as a result of the combination
* In excess of €5 billion estimated annual run rate synergies incremental to existing Renault-Nissan-Mitsubishi Alliance (Alliance) synergies
* Strong combined balance sheet allowing for flexible capital allocation and robust dividend policy
* Significant benefits to the other Alliance partners including ~€1 billion of additional estimated run-rate synergies
May 27th, 2019, London – IMPORTANT NOTICE
By reading the following release, you agree to be bound by the following limitations and qualifications:
This press release is for informational purposes only and is not intended to and does not constitute an offer or invitation to exchange or sell or solicitation of an offer to subscribe for or buy, or an invitation to exchange, purchase or subscribe for, any securities, any part of the business or assets described herein, or any other interests or the solicitation of any vote or approval in any jurisdiction in connection with the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. This press release should not be construed in any manner as a recommendation to any reader of this press release.
This press release is not a prospectus, product disclosure statement or other offering document for the purposes of Directive 2003/71/EC of the European Parliament and the Council of November 4th, 2003, as amended, in particular, by Directive 2010/73/EC of the European Parliament and the Council of November 24th, 2010, as amended and as implemented in each member State of the European Economic Area and under French and Dutch law.
An offer of securities in the United States pursuant to a business combination transaction will only be made, as may be required, through a prospectus which is part of an effective registration statement filed with the U.S. Securities and Exchange Commission. Shareholders of Fiat Chrysler Automobiles N.V. (“FCA”) and Renault S.A. (“Renault”) who are U.S. persons or are located in the United States are advised to read the registration statement when and if it is declared effective by the U.S. Securities and Exchange Commission because it will contain important information relating to the proposed transaction. You may obtain copies of all documents filed with the SEC regarding the proposed transaction, documents incorporated by reference, and FCA’s SEC filings at the SEC’s website at http://www.sec.gov. In addition, FCA will make the effective registration statement available for free to shareholders in the United States.
Fiat Chrysler Automobiles N.V. has today delivered a non-binding letter to the Board of Groupe Renault proposing a combination of their respective businesses as a 50/50 merger.
The FCA proposal follows initial operational discussions between the two companies to identify products and geographies where they could collaborate, particularly as they develop and commercialize new technologies. These discussions made clear that broader collaboration through a combination would substantially improve capital efficiency and the speed of product development. 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 in areas like connectivity, electrification, and autonomous driving.
The proposed combination would create a global automaker, preeminent in terms of revenue, volumes, profitability, and technology, benefitting the companies’ respective shareholders and stakeholders. The combined business would sell approximately 8.7 million vehicles annually, would be a world leader in E.V. technologies, premium brands, SUVs, pickup trucks and light commercial vehicles and would have a broader and more balanced global presence than either company on a standalone basis.
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. FCA has a history of successfully combining OEMs with disparate cultures to create strong leadership teams and organizations dedicated to a single purpose. Therefore, FCA’s Board strongly believes that this combination, which would have the scale, expertise, and resources to navigate the rapidly changing automotive industry, would create new opportunities for employees of both companies and other key stakeholders.
Under the terms of the proposal, shareholders in each company would receive an equivalent equity stake in the combined company. The combination would be carried out as a merger transaction under a Dutch parent company. The Board of the combined entity would initially be composed of 11 members, with the majority being independent and with equal representation of four members each for both FCA and Groupe Renault, as well as one nominee from Nissan. Further, there would be no carryover of existing double voting rights. However, all shareholders would have the opportunity to earn loyalty voting rights from the completion of the transaction under a loyalty voting program. The parent company would be listed on the Borsa Italiana (Milan), Euronext (Paris) and the New York Stock Exchange.
The benefits flowing from the combination of the two businesses would be shared, 50% by current FCA shareholders and 50% by current Groupe Renault shareholders. Before the transaction is closed, to mitigate the disparity in equity market values, FCA shareholders would also receive a dividend of €2.5 billion (see Appendix). In addition, prior to closing, there would be a distribution of Comau’s shares to FCA’s shareholders or an incremental €250 million dividend if the Comau spin-off does not occur.
Combining the businesses will bring together complementary strengths. The combination would create a brand portfolio that would provide full market coverage with a presence in all key segments from luxury/premium brands, such as Maserati and Alfa Romeo, to the strong access brands of Dacia and Lada, and would include the well-known Fiat, Renault, Jeep and Ram brands as well as commercial vehicles. Groupe Renault has a strong presence across Europe, Russia, Africa, and the Middle East, while FCA is uniquely positioned in the high margin segments in North America and is a market leader in Latin America. FCA’s evolving capability in autonomous driving, which includes partnerships with Waymo, BMW and Aptiv, is complemented by Groupe Renault’s decade of experience in E.V. technology where it is the highest selling EV OEM in Europe. Groupe Renault also has a well-established and profitable financing business (RCI Banque).
The combination would be highly valued accretive for both FCA and Groupe Renault shareholders, delivering in excess of €5 billion of estimated annual run rate synergies, incremental to existing Alliance synergies. These synergies would arise principally from the convergence of platforms, the consolidation of powertrain and electrification investment, and the benefits of scale. FCA estimates based on its experience that approximately 90% of synergies would come from purchasing savings (~40%), R&D efficiencies (~30%), and manufacturing and tooling efficiencies (~20%). Included in these estimated savings would be the potential to reduce the combined number of vehicle platforms by approximately 20% and engine families by approximately 30%. The full run rate of estimated synergies is expected to be achieved by the end of year six following closing, with about 80% achieved in year four. Taking into account the impact of the approximately €3-4 billion in cumulative implementation costs, it is estimated that the synergies would be net cash flow neutral in year one and positive from year two onward.
Geographically, based on FCA and Groupe Renault’s 2018 global sales, the combined company would be #4 in North America, #2 in EMEA and #1 in Latin America and would have the increased resources necessary to grow its footprint in the APAC region. On a simple aggregated basis of 2018 results, the combined company’s annual revenues would be nearly €170 billion with an operating profit of more than €10 billion and a net profit of more than €8 billion.
While the proposal focuses on a combination of FCA and Groupe Renault, FCA looks forward – as part of a combined enterprise with Groupe Renault – to working with Groupe Renault’s Alliance partner companies on ways to create additional value for all Alliance members. FCA recognizes the standing and achievements of Groupe Renault’s partners and sees significant expected benefits to all parties from the expanded partnership. The FCA and Groupe Renault combination together with its Nissan and Mitsubishi partners would be the largest global OEM alliance, selling more than 15 million vehicles annually. The additional synergies stemming from the merger of FCA and Groupe Renault that is expected to accrue to Nissan and Mitsubishi purely as members of the Alliance are estimated to be worth an incremental €1 billion annually.
This proposal offers the opportunity to create the #3 global automotive company with broad, complementary, and strong brand and geographic presence and important strengths in transforming technologies. It also confirms and enhances the value of the existing Alliance and its potential to become even stronger in the future. While there is no certainty that this proposal will result in a transaction, the Board of FCA has strongly supported and approved the proposal which will now be reviewed by the Groupe Renault Board of Directors. The definitive agreements for the proposed combination are subject to negotiation and final review and approval by the FCA and Groupe Renault Boards. Completion of the proposed combination would also be subject to customary closing conditions, including approval by each company’s shareholders, as applicable, and the satisfaction of antitrust and other regulatory requirements.