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Fiat Chrysler has proposed to merge with France’s Renault to create the world’s third-biggest automaker, worth $40 billion, and combine forces in the race to make electric and autonomous vehicles.
The merged company would reshape the global industry: it would produce some 8.7 million vehicles a year, leapfrogging General Motors and trailing only Volkswagen and Toyota.
Shares of both companies jumped on the news of the offer, which would see each side’s shareholders split ownership in the new manufacturer. Together, they would be worth almost $40 billion.
Renault welcomed what it called a ‘friendly’ offer. The company’s board met last week at its headquarters outside Paris and said afterward that Renault will study the proposal ‘with interest’. In a statement, Renault said such a fusion could ‘improve Renault’s industrial footprint and be a generator of additional value for the Alliance’ with Japan’s Nissan and Mitsubishi.
Fiat Chrysler’s offer comes at a key moment for Renault. The French manufacturer had wanted to merge fully with Nissan, but those plans were derailed by the arrest of boss Carlos Ghosn on financial misconduct charges in Japan.
Now, questions are growing over the Renault-Nissan-Mitsubishi alliance , which together make more passenger cars than any one company.
While Fiat Chrysler says the merger with Renault would accommodate the alliance and lead to savings for them, it is unclear how the Japanese companies might react in the longer term to being tied to a much larger partner.
Automakers have collaborated more in recent years as they come under pressure to invest heavily in developing electric cars, self-driving vehicles and in-car connectivity.
A deal would save $5.6 billion a year for the merged companies by sharing research, purchasing costs and other activities, Fiat Chrysler said. It promised the deal would involve no plant closures.
The companies are largely complementary: Fiat Chrysler is stronger in the US and SUV markets, while Renault is stronger in Europe and in developing electric vehicles.
“The elephant in the room is who will run the entity,” analysts Philippe Houchois and Himanshu Agarwal wrote in a note to investors.
Mergers of equals can be difficult to manage over questions of who gets the top leadership positions and which brands are promoted and invested in most.
Karl Brauer, the executive publisher of Kelley Blue Book and Autotrader said: “It’s a powerful combination in theory but aiming for a single, aligned automotive entity, with everyone rowing in the same direction, might not be realistic.”
Both companies and their brands have loyal support in the kingdom and dealership ties with two prominent families in Bahrain. Behbehani Bros distribute the Fiat Chrysler range which includes Dodge and Alfa Romeo, and Renault comes under the umbrella of Y.K. Almoayyed
