FCA (Fiat-Chrysler) has issued a proposal for a ‘transformative merger’ with Renault. Under the plans, the combined business would be owned 50% by FCA shareholders and 50% by Groupe Renault shareholders.
FCA says the combination would create the third largest global OEM with 8.7m annual vehicle sales and strong market presence in key regions and vehicle segments. Moreover, it claims there would be a broad and complementary brand portfolio to provide full market coverage, from luxury to mainstream.
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It also says the merged company would be in a strong position in transforming technologies, including electrification and autonomous driving. It is also claimed that no plant closures woudl be necessary as as a result of the combination.
FCA also said that in excess of EUR5bn estimated annual run rate synergies would be incremental to existing Renault-Nissan-Mitsubishi Alliance (Alliance) synergies. It is saying that there would be considerable benefits to the other Alliance partners including EUR1bn of additional estimated run rate synergies.
The FCA proposal follows initial operational discussions between the two companies to identify products and geographies where they could collaborate. Those discussions, it said, “made clear that broader collaboration through a combination would substantially improve capital efficiency and the speed of product development”.
FCA says 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, engineering architectures, powertrains and technologies.
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By GlobalDataThe 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.
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 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 EV technology where it is the highest selling EV OEM in Europe.
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, R&D efficiencies and manufacturing and tooling efficiencies. 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 EUR3-4bn 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.
FCA said that 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’.
The FCA and Groupe Renault combination together with its Nissan and Mitsubishi partners would be the largest global OEM alliance, selling more than 15m vehicles annually.
