Breakingviews - Cox: Bruno Le Maire’s an awesome investment banker

PARIS (Reuters Breakingviews) - Bruno Le Maire is either the greatest investment banker roaming the earth, or a living transfiguration of Charles de Gaulle’s industrial policy. The French finance minister on Wednesday night single-handedly blew up the $35 billion merger of Fiat Chrysler Automobiles and Renault, a deal that ticked nearly every box imaginable for shareholders and would have created the world’s third-largest carmaker.

French Finance Minister Bruno Le Maire at the European Parliament in Strasbourg, France, October 23, 2018. REUTERS/Vincent Kessler

It’s too early to determine whether Le Maire, who works for President Emmanuel Macron, himself a former Rothschild financier, deserves the merger advisor of the year trophy. That will depend on whether the finance minister’s hardball negotiating stance helps quickly engineer an even better deal for Renault, which is 85% owned by the sorts of private investors his boss has repeatedly wooed at the glittering Palace of Versailles.

Until then, the only prize Le Maire deserves is the de Gaulle award for dirigisme. The French state has played a stronger role, for longer, in industry and finance than in any other nation in Western Europe. But, as history shows, the story of how the state became an investor in Renault is perhaps the worst, and certainly the most brutal, example of Parisian politicians overstepping their boundaries.

The 15% slice of Renault held by Le Maire’s ministry is a vestige of the nationalisation of the company following the liberation of France, which began with the D-Day invasion, 75 years to the day before the Fiat-Renault merger collapsed.

That episode alone doesn’t make the Renault case unique. Many European industrial assets were seized by newly liberated European governments, often because their previous owners collaborated with the Third Reich. Louis Renault refused to build tanks for the Nazis, but his Billancourt factory did produce trucks for the Wehrmacht.

Renault was arrested in September 1944 and died four weeks later in custody. His widow, and subsequent scholars and researchers, contended that he had been beaten in Fresnes prison before his trial. In early 1945, de Gaulle’s government expropriated the company and effectively made it an arm of the state. It would be another half-century before Renault was returned to the private sector, and quickly thereafter led by Carlos Ghosn. The executive’s success at cutting costs and engineering an alliance with Nissan Motor effectively muted government’s role until Ghosn was locked up by Japanese prosecutors late last year, where he awaits trial.

Given that heritage, Le Maire arguably played to type during Wednesday’s board meeting. The French government’s two representative directors effectively used the failure of Nissan, which holds a 15% stake in Renault, to explicitly endorse the Fiat deal as a ruse to end deliberations.

Those talks had produced a merger of equals which offered Renault numerous goodies. The French group’s chairman would become chief executive of the enlarged group, jobs in France would receive protections unheard of elsewhere, and the partners would share annual synergies of about $5 billion a year which, in today’s money, are worth about as much as the two car groups combined. The deal would also have created a European champion of the kind Le Maire endorsed so forcefully earlier this year when defending the rail merger between Siemens and Alstom, which was blocked by European competition authorities.

So it’s puzzling that the minister played his hand so vigorously that Fiat Chairman John Elkann, whose family has been making cars in Turin for 120 years, walked away. Sure, the owner of the Jeep, Alfa Romeo and Maserati brands needs consolidation and some of Renault’s electric vehicle innovations to help it confront the looming perfect storm of technological disruption, the demise of combustion engines and rising Chinese competition. Just not as badly as Le Maire thought.

Maybe it’s all an elaborate bluff. The pedigreed finance minister, who has diplomas from Sciences Po and the École Nationale d’Administration, the fanciest postgraduate school in France, may have a clever plan up his sleeve. Perhaps he will use an imminent trip to Tokyo for a meeting of the G7 group of industrialised nations to wrangle Nissan into endorsing the deal with Fiat. That was the excuse he gave for wanting the board to adjourn last night.

In the process, Le Maire might persuade Fiat to throw some more money at Renault as an admission that the capital markets had undervalued the 16 billion euro company. Dispensing with the theory of efficient markets, he might then convince Elkann and Fiat’s board that Renault’s shares do not reflect the true value of its 43% shareholding in Nissan, its electric cars and its captive financing arm.

Then again, Le Maire may be playing a longer game. His real plan might be to soothe the Japanese, who have been annoyed since 2015 when Macron - his predecessor at the finance ministry – used a too-clever hedge fund maneuver to give the state extra voting rights in Renault, at Nissan’s expense. Maybe the idea is to sweet-talk Nissan into a full merger with its French ally – something the Japanese company has resisted so far.

At the same time, Elkann might decide to sell Fiat to French rival Peugeot. In the process, as illustrated by my colleague Liam Proud, the Agnelli family becomes an equity investor with a smaller stake than the clever French government.

If these two deals materialise, Le Maire would have earned the banker of the year award. Until then, the role model is de Gaulle, around the time he threw Renault’s founder in prison and took his company without due process.


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