Fiat Chrysler Automobiles has unveiled a proposed a 50-50 merger with Groupe Renault that would reshape the global automotive industry. In response to FCA’s proposal, Renault’s Board of Directors met to examine the proposal regarding the potential merger between the two auto giants. Following careful analysis of the terms of the FCA Renault merger proposal, the Board of Directors has decided to continue to study with interest the opportunity of such a move.
Reimagine and Adapt
The global automotive market has been facing challenges the likes of which it has never faced in its history. Manufacturers across the board are feeling the pressure and need to reimagine and adapt.
The paradigm shift is evident in the accelerating investments and initiatives in connectivity, autonomy, sharing, and electrification. The knock-on effects of the new paradigm are further compounded by ever-tightening rules and regulations surrounding vehicle emissions norms, the rise of agile new players, and a drop in overall unit sales in a number of markets. All these factors have resulted in shrinking profit margins.
Fiat Chrysler Automobiles has unveiled a proposed $35 billion all-share merger with Groupe Renault that would reshape the global automotive industry.
If the US$35 billion FCA-Renault merger pulls through, the combination would likely create a robust and future-ready global OEM. This, in turn, would result in growth in revenue, volumes, profitability, and allow for sharing of technologies and platforms – all of which will benefit the companies’ respective shareholders and stakeholders. The proposed merger would also, with its combined business, be able sell approximately 8.7 million vehicles per year and lead to up to US$5.6 billion in yearly savings.
Financial Markets Optimistic
Not only make the merged OEM a world leader in EV technologies, SUVs, luxury brands, pickup trucks and light commercial vehicles, but also help boost its market capitalisation. The result of the merger talks has been positive for FCA and Renault, as shares of both the companies grew by more than 10%.
The effect of the merger talks on the share prices of FCA and Renault has been rather positive, with shares of both the companies rising by more than 10%.
Following the announcement of the merger proposition, there were some concerns that it would disrupt Renault’s plant operations and workforce management. However, FCA assured noting of that sort would transpire, and that there will also not be any closures of manufacturing plants. It agreed that any benefits from the planned merger are premised on the basis of increased capital efficient investment in common global vehicle platforms, architectures, powertrains and technologies. It also stated that, according to the terms mentioned in the merger proposal, shareholders would receive equity stake in the combined company. The combination would be carried out as a merger transaction under a Dutch parent company.
If the US$35 billion FCA-Renault merger pulls through, the combination would likely create a more robust and future-ready global OEM.
As part of the proposed merger and to avoid any disparity in equity, the FCA group will pitch in approximately US$2.8 to the shareholders. FCA stated that it would also sell its Comau Robotics division to raise further capital, and if that doesn’t go through, an incremental dividend of up to US$280 million will be paid to the respective shareholders. The merger will also prove beneficial for FCA and Renault shareholders, with planned estimated annual run-rate synergies in excess of US$5.5 billion, a definite increase over the existing alliance synergies. Furthermore, considering the impact of the approximately US$3.3-4.5 billion in cumulative implementation costs, it is estimated that the synergies would be net cash-flow neutral in the first year, turning positive from year two onward.
On the basis of FCA and Groupe Renault’s 2018 global sales, the combined company would be fourth in North America, second in EMEA and first in Latin America, and would have the increased resources necessary to grow its footprint in the APAC region as well. The combined company’s yearly revenues are predicted to be nearly US$190 billion, while operating profit would be US$11.2 billion and net profit would be north of US$8.9 billion.
FCA has said a deal would embrace Renault alliance partners Nissan and Mitsubishi Motors as “valued and respected partners.”