Renault Directors Named by Nissan Set to Abstain on Fiat Vote

(Bloomberg) -- Renault SA is facing resistance from partner Nissan Motor Co. as the French carmaker’s board prepares to consider an offer to merge with Italy’s Fiat Chrysler Automobiles NV.

Directors of Renault nominated by Nissan are expected to abstain from a vote Tuesday on backing further talks with Fiat about the proposal, said people familiar with the information who asked not to be identified because the details aren’t public. Fiat Chief Executive Officer Mike Manley is in Paris ahead of the vote, which would stop short of approving a merger.

Renault’s path toward a deal with Fiat was muddied on Monday by Nissan, which holds a 15% stake in the French manufacturer as part of their two-decade auto-making alliance. Nissan CEO Hiroto Saikawa said the company needs to review the future of their partnership, including contractual relationships, in light of Renault’s potential tie-up with Fiat.

Fiat Chrysler’s proposal for a 50-50 Dutch holding company would create the world’s third-biggest car maker, adding scale to help the companies share costs and resources while tackling an expensive shift to electrification and autonomous driving. Shares of both Fiat and Renault climbed early Tuesday.

Renault Directors Named by Nissan Set to Abstain on Fiat Vote

While Nissan can’t block a Fiat-Renault combination, the Yokohama-based company could use its strong presence in China, Japan and the rest of Asia, as well as its electric-car technology, as leverage. French Finance Minister Bruno Le Maire has also said he wants any combination with Fiat to come within the framework of the Franco-Japanese alliance, which also includes Mitsubishi Motors Corp.

‘Fundamental Review’

“The potential addition of FCA as a new member of the alliance could expand the playing field for collaboration and create new opportunities for further synergies,” Saikawa said in his statement. “That said, the proposal currently being discussed is a full merger which — if realized — would significantly alter the structure of our partner Renault. This would require a fundamental review of the existing relationship between Nissan and Renault.”

Renault Directors Named by Nissan Set to Abstain on Fiat Vote

The French government, Renault’s most powerful shareholder, is also making demands. It wants additional guarantees from Fiat to avoid job cuts in France and other steps to protect national interests, people familiar with the matter have said.

France is seeking operational headquarters of the combined company in Paris, and a special dividend for shareholders of Renault, which owns a 43% stake in Nissan, as well as a French government seat on the new company’s board, a finance ministry spokesman said.

Le Maire is also seeking guarantees on the mandate of Senard. The minister’s office wants Senard, 66, to have the CEO role for at least four years, one of the people said.

Representatives for Renault and Fiat Chrysler have declined to comment.

The deal would benefit Fiat more than Renault, Paris-based activist investment manager CIAM said in a letter to Renault board members ahead of the vote. The French carmaker’s industrial assets have a negative implied value of 3 billion euros under the terms of the proposed deal. Based on earnings before interest and taxes, they should be valued at 6.75 billion euros, according to the Renault shareholder.

What the Activist Investor Says:

  • Special dividend should be paid to Renault holders, not Fiat Chrysler holders, CIAM President Catherine Berjal says
  • “We are therefore surprised at the lack of premium involved in this buyout and we will strongly oppose this opportunistic takeover that not only undervalues Renault, but also offers no control premium if the price remains as planned,” she writes
  • “Additionally, tensions within the Renault-Nissan alliance should be able to be resolved in order to complete the merger, freeing the group of an unjustified valuation discount”

Under terms of the proposal, Renault shareholders including the French government, which owns a 15% stake, would get an implied premium of about 10%, while Fiat owners would get dividends to account for its higher equity value. Renault shares rose as much as 3.9% by 1:22 p.m. in Paris, while Fiat climbed 3.2% in Milan, giving the firms a combined market capitalization of about 34.2 billion euros ($38.5 billion).

The relationship between Renault and Nissan has been strained by the fallout from the arrest of their former chairman, Carlos Ghosn, in November. Mitsubishi Chairman Osamu Masuko has said he would need more time to determine the benefits, if any, for the Japanese automaker of the Renault-Fiat merger.

©2019 Bloomberg L.P.

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