Breakingviews - Fiat gets motors revving on auto consolidation

FILE PHOTO: A Fiat car on display at the North American International Auto Show in Detroit, Michigan, U.S., January 16, 2018. REUTERS/Jonathan Ernst/File Photo

MILAN, PARIS (Reuters Breakingviews) - Fiat Chrysler Automobiles’ marriage proposal to Renault lovingly delivers gifts to everyone in the wedding party. The Italian-American group’s planned tie-up with its European rival should keep partner Nissan Motor warm, give the French state a graceful exit and give the Agnelli family and other Fiat shareholders a chunk of cash. It also promises to unleash a 5 billion euro bonanza of cost savings that will put industry rivals on notice.

The master plan for the 33 billion-euro merger, unveiled by Fiat Chairman John Elkann on Monday, appeases all stakeholders. To equalize market values, FCA will pay a dividend of 2.5 billion euros before consummating the union. Some 675 million euros of that will go to Agnelli family holding company Exor, which will emerge with the largest stake in the combined group, at around 14.5%.

To win over the French and Italian governments Elkann has promised not to close any plants. But the deal also offers an honourable way out of a predicament President Emmanuel Macron created in 2015. As France’s economy minister, the ex-Rothschild banker doubled the state’s voting rights in Renault, to the detriment of Nissan. That was the start of the Japanese group’s mistrust of its alliance partner that led to the ousting of Carlos Ghosn.

Switching its affections to Fiat would allow Renault to stop pestering Nissan about a potential combination, while allowing its Japanese partner to feast on an extra 1 billion euros of savings. The French state will play second fiddle to Exor, and may not even have a seat on the new company’s board, which will likely be chaired by Elkann, with Renault Chairman Jean-Dominique Senard as chief executive.

For the broader investor base there are synergies - from shared purchasing, platforms and research and development - equal to 3% of combined 2018 sales to feast on. While ambitious, that figure is in line with savings achieved by the Nissan-Renault-Mitsubishi alliance. After deducting integration costs, this would be worth some 30 billion euros to investors today - nearly equal to the two companies’ combined market value before the news.

All in, it’s an offer that Nissan, Paris and shareholders would be mad to refuse. And it’s one that rivals - from former Fiat suitor Peugeot to bigger players Volkswagen and General Motors – will consider emulating. Ladies and gentlemen, please give it up for the bride and groom.


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