June 10, 2019 / 11:19 AM / a year ago

Breakingviews - Renault-Nissan clash exposes flaws in Fiat deal

Renault Chairman Jean-Dominique Senard and Nissan CEO Hiroto Saikawa attend a Renault, Nissan and Mitsubishi chiefs' joint news conference in Yokohama, Japan, March 12, 2019. REUTERS/Kim Kyung-Hoon

LONDON/HONG KONG (Reuters Breakingviews) - Squint hard, and it’s possible to interpret the latest headlines involving Renault and Fiat Chrysler Automobiles as progress towards reviving the carmakers’ 33 billion euro merger. Step back, however, and negotiations involving the French group’s state shareholder and Japanese ally Nissan Motor expose the dysfunctional governance which would hobble a broader partnership.

The merger plan which Fiat Chairman John Elkann abruptly withdrew last week after meddling by the French government may not be entirely dead. Elkann and his Paris-based counterpart Jean-Dominique Senard are seeking to revive a deal, Reuters reported on Monday, possibly by reducing Renault’s 43% stake in Nissan. Separately, French Finance Minister Bruno Le Maire said the government could reduce its 15% holding in Renault. Finally, Senard sent a letter to Nissan Chief Executive Hiroto Saikawa threatening to block the Japanese group’s plan to overhaul its governance following the ousting of Chairman Carlos Ghosn.

It’s possible to distill signs of hope from the noise. After all, Le Maire effectively sank talks with Fiat because he was concerned about Nissan’s frosty reaction. If Renault sold some shares in its Japanese partner, and the government also reduced its influence over the French group, Nissan might decide to support the merger. Senard’s threat to veto the Japanese company’s overhaul gives it an extra incentive to play ball.

It’s still a long shot, though. Renault’s previous attempts to corral Nissan into closer cooperation have prompted a backlash. Senard’s letter arguably breaches the spirit of a 2015 agreement where Renault pledged not to interfere in Nissan’s governance. An unravelling of the Franco-Japanese alliance would undermine the appeal of a Renault deal to Fiat, which reckons 2 billion euros of its planned 5 billion euros of annual cost savings will come from joint purchasing of materials.

It would also be an odd time for Renault to sell Nissan’s shares, which are down 30% in a year. The French state, meanwhile, would risk bailing out of Renault prematurely, before reaping any of the benefits of a merger with Fiat.

Crucially, Le Maire’s prominent role in the negotiations reinforces Elkann’s concerns over government intrusion. With so many participants demanding a seat at the table, successfully running an enlarged company seems an even more distant prospect.


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