Renault revs up on report of possible merger with Nissan

The companies who have been in a strategic alliance since 1999, are reportedly discussing becoming one giant entity and merging their stocks. Earlier in the month, the pair were reported by Reuters to be planning on a closer tie-up of their alliance, inlcuding buying the French state out of its 15% stake in Renault.

Currently Renault owns 43% of Nissan while the Japanese car maker has a 15% piece of the French firm.

As a merger plays on many political sensitivities, chiefly the French government ceding its influence over Renault and Nissan being freed up from French control, reports have noted that the two companies are keen to try to avoid appearances of a takeover by either side, to balance each side’s national interests.

Speculation suggests a new Dutch entity would be established as an interim structure ahead of a complete integration of Nissan, Renault and Mitsubishi Motors.

Spaniard Carlos Ghosn, CEO of Renault, is leading the negotiations and could be elected as the leader of the new merger, according to Bloomberg. He has previously said that the Renault-Nissan Alliance cannot be restructured to enhance shareholder value until France divests its stake.

A spokesman for the Renault-Nissan alliance said: “We do not comment on rumours and speculation.”

At the beginning of 2018, Renault, Nissan and Mitsubishi announced a new venture capital fund, Alliance Ventures. They plan to invest up to $1bn in the next five years betting on startups and innovation partnerships.

Renault and Nissan provide 40% of the capital each and Mitsubishi adds another 20%.

Responding to the reports that the companies were looking to buy out the French state, France recently dismissed this was "pure speculation."

Due to the political sensitivities, analysts at Olivetree Financial said a restructuring of the alliance with Nissan is realistically the only method available for Renault escape state control and noted Ghosn's contract extension requires shareholder approval at Renault’s AGM on 15 June.

Olivetree observed that Ghosn has history with French President Emmanuel Macron from 2015, when Macron was finance minister and the state increased its stake in Renault stake to 20%, allegedly to temper Ghosn’s ambitions to ring-fence Renault from the proposed Florange law that gave double voting rights to long term shareholders.

"It was reported at the time that Macron wanted to engineer a merger that would see the French state as the largest shareholder in a NewCo," analysts noted. "The Macron government is now undertaking a general stake-sale exercise, so a disposal of its Renault stake is entirely conceivable – but not in a manner that is insensitive to the potential political and economic sensitivities to the State.

"Hence the market has been more comfortable with the assumption that any deepening of a relationship with Nissan is more likely to be gradual, allowing a smooth exit for the State over a dramatic sell down."

With Ghosn’s reappointment expected to be ratified by Renault shareholders in mid June, Olivetree said it would appear to be "a natural imminent catalyst" to effect the next leg of this transaction in the near term. "Renault is likely to retain the optimism in its shareprice that we are now in the end-game for this story."