Fiat Chrysler Automobiles (FCA) recently delivered a non-binding letter to the Board of Groupe Renault proposing a 50/50 merger of their respective businesses. The FCA proposal will later be conducted as discussions between the two companies to select products and places where they could easily collaborate, specifically as they develop and commercialize new technologies for the future. These discussions will then lead to a broader collaboration of the 2 companies, which would substantially improve project fundings like connectivity, electrification and autonomous driving. This will help increase the speed of product and technology development.
The proposed combination would create a global automaker, mostly in terms of revenue, volumes, profitability and technology, benefitting both the companies’ respective shareholders and stakeholders. The combined business would be able to sell approximately 8.7 million vehicles annually, which would eventually make them the world leaders in EV technologies, premium brands, SUVs, pickup trucks and light commercial vehicles. This would mean that both the companies can have a broader and more balanced global presence than any other company.
FCA has a history of successfully combining automotive brands from different cultures and countries to create strong leadership teams and organizations dedicated to a single purpose. Therefore, FCA’s Board strongly believes that this merger would have the scale, expertise and resources to navigate the rapidly changing automotive industry, and would also be able to create new opportunities for employees of both the companies, along with other key stakeholders.
The FCA proposal is as follows:
“The shareholders in each company would receive an equal equity stake in the united company. The combination would be carried out as a merger transaction under a single Dutch parent company. The Board of the combined entity would initially compose of only 11 members, with the majority being independent and with equal representation of four members each for both FCA and Groupe Renault, as well as one nominee from Nissan. There would be no carryover of existing double voting rights. However, all shareholders would get the opportunity to earn voting rights from the completion of the transaction under a loyalty voting program.
The benefits flowing from the combination of the two businesses would be shared, 50% by current FCA shareholders and 50% by current Groupe Renault shareholders. Before the transaction is closed, to decrease the disparity in equity market values, FCA shareholders would also receive an additional dividend of €2.5 billion. Furthermore, there would be a distribution of Comau’s shares to FCA’s shareholders or an incremental €250 million dividend if the Comau spin-off does not occur.
Combining the businesses will bring together complementary strengths. The combination would create a brand portfolio that would provide full market coverage with a presence in all key segments from luxury/premium brands, such as Maserati and Alfa Romeo, to the strong access brands of Dacia and Lada, and would include the well-known Fiat, Renault, Jeep and Ram brands as well as commercial vehicles. Groupe Renault has a strong presence across Europe, Russia, Africa and the Middle East, while FCA is uniquely positioned in the high margin segments in North America and is a market leader in Latin America. FCA’s evolving capability in autonomous driving, which includes partnerships with Waymo, BMW and Aptiv, is complemented by Groupe Renault’s decade of experience in EV technology where it is the highest selling EV OEM in Europe. Groupe Renault also has a well-established and profitable financing business (RCI Banque).
The combination would be highly valued accretive for both FCA and Groupe Renault shareholders, delivering in excess of €5 billion of estimated annual run rate synergies, incremental to existing Alliance synergies. These synergies would arise principally from the convergence of platforms, the consolidation of powertrain and electrification investment and the benefits of scale. FCA estimates based on its experience, that approximately 90% of synergies would come from purchasing savings (~40%), R&D efficiencies (~30%), and manufacturing and tooling efficiencies (~20%). Included in these estimated savings would be the potential to reduce the combined number of vehicle platforms by approximately 20% and engine families by approximately 30%. The full run rate of estimated synergies is expected to be achieved by the end of year six following closing, with about 80% achieved in year four. Taking into account the impact of the approximately €3-4 billion in cumulative implementation costs, it is estimated that the synergies would be net cash flow neutral in year one and positive from year two onward.
Geographically, based on FCA and Groupe Renault’s 2018 global sales, the combined company would be #4 in North America, #2 in EMEA and #1 in Latin America and would have the increased resources necessary to grow its footprint in the APAC region. On a simple aggregated basis of 2018 results, the combined company’s annual revenues would be nearly €170 billion with an operating profit of more than €10 billion and a net profit of more than €8 billion.”
This proposal offers the opportunity to create the 3rd largest automotive company in the world. This merger request will also confirm and enhance the value of the existing alliance between these companies and the potential to become an even stronger brand in the future. While there is no assurance that this proposal will result in a transaction, the FCA board has strongly supported and approved this proposal, which will now be reviewed by the Groupe Renault Board of Directors. The proposal is yet to be negotiated and approved by the FCA and Groupe Renault Board of Directors.