Auburn Hills’ Fiat Chrysler Automobiles (FCA) has proposed, via a non-binding letter to the Board of Groupe Renault of France, a 50-50 merger that would create the world’s third-largest automaker.
The FCA proposal, according to the company, follows discussions between the two manufacturers to identify products and geographies where they could collaborate, particularly as they develop and commercialize new technologies.
“These discussions made clear that broader collaboration through a combination would substantially improve capital efficiency and the speed of product development,” said a press release from FCA. “The case for combination is also strengthened by the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry in areas like connectivity, electrification, and autonomous driving.”
The proposed combination would create the world’s third-largest automaker, behind Volkswagen and Toyota. The combined business, says FCA, would sell approximately 8.7 million vehicles annually, be a world leader in EV technologies, premium brands, SUVs, pickup trucks and light commercial vehicles, and have a broader and more-balanced global presence than either company separately.
According to FCA, the benefits of the proposed transaction are not predicated on plant closures, but would be achieved through more capital efficient investment in common global vehicle platforms, architectures, powertrains, and technologies.
“FCA has a history of successfully combining OEMs with disparate cultures to create strong leadership teams and organizations dedicated to a single purpose,” the press release said. “Therefore, FCA’s board strongly believes that this combination, which would have the scale, expertise, and resources to navigate the rapidly changing automotive industry, would create new opportunities for employees of both companies and for other key stakeholders.”
Under the terms of the proposal, shareholders in each company would receive an equivalent equity stake in the combined company. The combination would be carried out as a merger transaction under a Dutch parent company. The board of the combined entity would initially be composed of 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.
Further, there would be no carryover of existing double voting rights. All shareholders, however, would have the opportunity to earn loyalty voting rights from the completion of the transaction under a loyalty voting program. The parent company would be listed on the Borsa Italiana (Milan), Euronext (Paris) and the New York Stock Exchange.
Profits from the combination of the two businesses would be shared equally by current FCA and Groupe Renault shareholders. Before the transaction is closed, to mitigate the disparity in equity market values, FCA shareholders would also receive a dividend of $2.79 billion (€2.5 billion). In addition, prior to closing, there would be a distribution of Comau’s shares to FCA’s shareholders or an incremental $2.79 million ( €250 million) dividend if the Comau spin-off does not occur.
“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,” the release continued.
“Groupe Renault has a strong presence across Europe, Russia, Africa, and 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).