Here’s What Analysts Have to Say as Fiat Walks Away From Renault

(Bloomberg) --

Fiat Chrysler Automobiles NV’s pullout from merger talks with French counterpart Renault SA pushes the two carmakers to strengthen or renew ties with other rivals, according to analysts. Citigroup Inc. and Evercore ISI downgraded Renault shares after the news, while RBC was more optimistic, saying that the offer highlighted unlocked value in the firm.

Renault shares plunged as much as 8% in Paris trading Thursday after Fiat Chrysler said it’s withdrawing a proposal to combine, following the French company’s postponement of a decision at the request of the national government, the most important voice on its board. While the Italian-American company’s stock dropped as much as 3.8%, it pared losses late morning in Milan, as Asian and European automotive shares gained after China outlined an industry stimulus package. Shares of both companies had soared last week on news of the deal.

Here’s a roundup of what analysts are saying:

Citigroup, Raghav Gupta-Chaudhary

(Cuts Renault to neutral)

• Broker lowers Renault recommendation, citing no deal and consensus 2020 expectations being “too high.” Notes that Renault faces cost headwinds to meet tighter environmental rules
• Citi had previously held off on downgrading amid Fiat Chrysler proposal as deal “looked extremely accretive for Renault’s earnings” and market priced in some synergies

RBC, Tom Narayan

(Top Pick rating on Renault)

• Renault share-price drop is unlikely to erase all its earlier gains as Fiat Chrysler’s offer “highlighted to the market the unlocked value” of the French carmaker
• Deal’s collapse may also unlock value of Renault partner Nissan and push them closer in their alliance
• RBC still likes concept of a Fiat-Renault combination, doesn’t rule a deal out completely

Jefferies, Philippe Houchois

(Rates Renault and Fiat both buy)

• Fiat Chrysler has wider strategic options, with Renault shares having more downside risk in the near term
• Merger ratio, Renault stock outperformance showed investors were supportive of a deal
• Broker queries why the French state is emphasizing Nissan alliance “to the detriment of Renault’s strategic options”

Oddo BHF

(Rates Renault buy, Fiat neutral)

• Offer’s collapse will add pressure on Renault to solidify the Nissan partnership
• Pullout could potentially revive earlier speculation on a Fiat Chrysler-PSA Group tie-up

Evercore ISI, Arndt Ellinghorst

(Cuts both Renault and Fiat Chrysler to in-line from outperform)

• Broker “very disappointed” with Fiat walking away, as both management teams had understood the combination’s industrial logic and were ready to reach a deal
• “When governments get in the way, the outcome is rarely positive for shareholders or indeed long-term fundamental performance”

--With assistance from Ksenia Galouchko, Albertina Torsoli, Zoe Schneeweiss and Christoph Rauwald.

To contact the reporter on this story: Tom Lavell in Frankfurt at tlavell@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, John Viljoen

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