Fiat Chrysler Proposes 50:50 Merger With Renault

Fiat Chrysler Automobiles is in advanced discussions to forge a "transformative" $36.5 billion merger with Group Renault.

If agreed, the merger would create the world’s third largest auto maker, uniting brands such as Fiat, Chrysler, Dodge, Alfa Romeo and Maserati from FCA with Renault, Nissan, Mitsubishi and Dacia from the Group Renault.

The proposed tie-up would create a company larger than General Motors, third globally behind Volkswagen and Toyota based on volume with annual sales of 8.7 million vehicles, combined revenues close to $190 billion and an operating profit of $11.2 billion.

Following media reports of a possible merger between the two companies, FCA issued a statement suggesting a collaboration between the Italian-American auto maker and French-based Group Renault 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," FCA said.

In a more definitive statement, Group Renault confirmed its board was planning to meet to discuss a full merger with FCA.

“Group Renault confirms that it received a proposal from FCA regarding a potential 50:50 merger transaction between Group Renault and FCA. Renault’s board of directors will meet to discuss this proposal,” the Group Renault statement read.

The discussions were first reported by the Financial Times, which reported that Group Renault alliance partner Nissan has not been involved in the talks so far.

Under the proposal tabled by FCA, the two automakers would equally hold a 50% stake in a newly created Dutch-based holding, which would be jointly listed on Milan's Borsa Italiana, Paris' Euronext and the New York Stock Exchange.

A similar Dutch-based holding company had been proposed by Group Renault for a full merger with Nissan.

FCA said a combined company would offer a brand portfolio spanning all key automotive segments and have a strong presence in key global markets. FCA is a leader in SUV sales in North America and is a market leader in Latin America while Group Renault has a strong presence across Europe, Russia, Africa and the Middle East.

The FCA statement also confirms it would join Renault's existing automotive alliance with Nissan and Mitsubishi.

The proposed merger calls for the appointment of 11 board members, with equal representation of four members from both Fiat Chrysler and Group Renault, as well as one nominee from Nissan.

FCA said the combined company would result in annual synergies in excess of $5.6 billion, in addition to the existing Renault-Nissan-Mitsubishi Alliance. The synergies would come from a sharing of vehicle platforms, the consolidation of powertrains and combined investments in electric vehicles, as well as increased economies of scale through part sharing and joint production.

Additional synergies of $1.1 billion annually as a result of the proposed merger are also expected to accrue for Nissan and Mitsubishi.

FCA said there would be no plant closures as a result of the proposed merger with Group Renault, and that the newly created company would spend more on common vehicle platforms, powertrains and technologies than that being spent by FCA and Group Renault today.

A merger between FCA and Group Renault is seen as a good fit by automotive industry analysts. They point out that FCA’s strengths in SUVs in the North American market contrasts with Group Renault’s limited number of larger vehicles and lack of exposure to the U.S. FCA also brings premium brands Alfa Romeo and Maserati in the luxury market, a segment in which Group Renault does not currently compete. While FCA has been slow to adopt electric-vehicle technology, Group Renault is the European leader in EVs.

Two sticking points to the possible merger between FCA and Group Renault is the former’s existing commercial-vehicle joint venture with the PSA Group and the latter’s alliance with Mercedes-Benz parent company Daimler.