PARIS -- PSA and Fiat Chrysler unveiled Thursday a plan for a 50-50 merger of their operations to create the world's fourth-largest car manufacturer that would generate billions in savings without factory closures.
In a joint statement the French and US-Italian carmakers said their boards of directors "have each unanimously agreed to work towards a full combination of their respective businesses by way of a 50/50 merger."
It would be achieved via the creation of a parent company in the Netherlands in which the shareholders of each current group would own half.
The merged company would have combined sales of nearly 170 billion euros per year and 11 billion euros of operating profits, the carmakers said.
The Dutch-based parent company would have balanced representation and a majority of independent directors with FCA's John Elkann as chairman and PSA's Carlos Tavares as CEO and member of the board.
The boards of both carmakers "both share the conviction that there is compelling logic for a bold and decisive move that would create an industry leader with the scale, capabilities and resources to capture successfully the opportunities and manage effectively the challenges of the new era in mobility," said the statement.
A merger would create significant savings as both firms share the costs of developing electric vehicles that are expected to dominate personal transportation in the future as the world strives to reduce carbon emissions to limit climate change.
"The significant value accretion resulting from the transaction is estimated to be approximately 3.7 billion euros in annual run-rate synergies derived principally from a more efficient allocation of resources for large-scale investments in vehicle platforms, powertrain and technology and from the enhanced purchasing capability inherent in the combined group’s new scale," it said.
"These synergy estimates are not based on any plant closures," it added.
France, which owns a stake in PSA and earlier this year opposed a mooted tie-up between Renault and Fiat Chrysler, signaled it favours the project.
French Economy Minister Bruno Le Maire "favorably greets the entry into negotiations" of the two carmakers, said a statement from his office.
However, it warned the French government "will remain particularly vigilant on the industrial footprint in France, where decision making will be located and promises by the new group to create in Europe the infrastructure to build electric batteries" needed for the shift to new vehicles.
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MILAN/PARIS -- Fiat Chrysler pitched a finely balanced merger of equals to Renault on Monday to tackle the costs of far-reaching technological and regulatory changes by creating the world's third-biggest automaker.
If it goes ahead, the $35 billion-plus tie-up would alter the landscape for rivals including General Motors and Peugeot maker PSA Group, which recently held inconclusive talks with Fiat Chrysler (FCA), and could spur more deals.
Renault said it was studying the proposal from Italian-American FCA with interest, and considered it friendly.
Shares in both companies jumped more than 10 percent as investors welcomed the prospect of an enlarged business capable of producing more than 8.7 million vehicles a year and aiming for 5 billion euros ($5.6 billion) in annual savings.
It would rank third in the global auto industry behind Japan's Toyota and Germany's Volkswagen.
But analysts also warned of big complications, including Renault's existing alliance with Nissan, the French state's role as Renault's largest shareholder and potential opposition from politicians and workers to any cutbacks.
"The market will be careful with these synergy numbers as much has been promised before and there isn’t a single merger of equals that has ever succeeded in autos," Evercore ISI analyst Arndt Ellinghorst said.
With these sensitivities in mind, FCA proposed an all-share merger under a listed Dutch holding company. After a 2.5 billion euro dividend for existing FCA shareholders - giving a big upfront boost to the Agnelli family that controls 29 percent of FCA - investors in each firm would hold half of the new entity.
The merged group would be chaired by Agnelli family scion John Elkann, sources familiar with the talks told Reuters, while Renault chairman Jean-Dominique Senard would likely become CEO.
Renault's board will hold informal work sessions within days and likely decide next week whether to enter an agreement with FCA to proceed with merger talks, two sources said.
Italian Deputy Prime Minister Matteo Salvini welcomed the merger proposal but said Rome may need to acquire a stake, balancing France's 15 percent Renault holding - which is set to be diluted to 7.5 percent of the combined group.
A deal could also have profound repercussions for Renault's 20-year-old alliance with Nissan, already weakened by the crisis surrounding the arrest and ouster of former chairman Carlos Ghosn late last year. The Japanese carmaker has yet to comment on FCA's proposal.
In a letter to employees seen by Reuters, FCA chief executive Mike Manley cautioned a merger with Renault could take more than a year to finalize.
'BOLD DECISIONS'
A deal could help both companies address some of the shortcomings that have led their market valuations to lag major rivals, as well as the shift to electric and self-driving technologies amid tightening emissions regulations.
FCA has a highly profitable businesses in North America with its RAM trucks and Jeep brand, but lost money last quarter in Europe, where most of its plants are running below 50 percent capacity and it faces a struggle with new emissions curbs.
Renault, by contrast, was an early mover in electric cars, has relatively fuel-efficient engine technologies and a strong presence in emerging markets, but no US business.
A deal would do little, however, to address both firms' limited presence in China, the world's biggest auto market.
It would also create the challenge of managing a large number of brands, from high-end Maseratis to budget Dacias.
The huge cost of countering disruptive new entrants such as Tesla's electric cars or future autonomous vehicles from Uber and Google has pushed other automakers to collaborate, including Volkswagen and Ford.
FCA-Renault, like almost every possible automotive pairing, has been studied intermittently for years by dealmakers. But the fractious relations between Ghosn and FCA's long-standing boss Sergio Marchionne made constructive talks impossible before Marchionne's sudden death last July, banking sources said.
Renault shares were up 15 percent to 57.46 euros at 1320 GMT, while FCA's Milan-listed stock was up 11.3 percent at 12.75 euros. PSA , widely seen as an industry consolidator, was off 3 percent.
PARIS AND ROME
The French government, Renault's biggest shareholder, supports a merger with FCA in principle but will need to see more details, its main spokeswoman said.
France will be "particularly vigilant regarding employment and industrial footprint," another Paris official said, adding any deal must safeguard Renault's alliance with Nissan, which recently rebuffed a merger proposal from its partner.
Seeking to soothe concerns, FCA said the deal plans "are not predicated on plant closures, but would be achieved through more capital-efficient investment".
The carmakers have given commitments to maintain industrial jobs and sites, one source said - leaving room for white-collar and engineering layoffs as well as some plant downsizing.
Early areas for potential convergence include Renault's next electric car platform being launched at its Douai site in France, the source said, adding all of Renault's board members backed the decision to study FCA's proposal with the exception of the leftist CGT union, which abstained.
In a sign of potential future tensions, the CGT demanded the French state retained a blocking stake in any merged group.
Appealing to Nissan, which is 43.4 percent-owned by Renault, FCA said the Japanese carmaker would nominate a director to the 11-member board of the new company. Nissan and affiliate Mitsubishi would also benefit from 1 billion euros in cost and investment savings, it added.
Decision-making by such a board is unlikely to be straightforward, some analysts warned.
"We now have the French, the Italians, the Japanese and the Americans needing to find consensus on the board of a Dutch company, where the French state stands to lose its special status," Ellinghorst said.
"This requires quite a bit of creativity."
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Fiat Chrysler Automobiles and the French carmaker Renault are holding discussions about a possible alliance aimed at strengthening both companies’ competitiveness in Europe and other parts of the world, a person familiar with the matter said Saturday.
The talks are still in early stages and could still collapse, but they come amid significant technological and regulatory changes that are pressuring automakers and spurring some to join forces.
Ford Motor and Volkswagen recently agreed to work together in pickup trucks and commercial vans and are in talks about combining their efforts to develop self-driving cars.
The specifics of the discussions between Fiat Chrysler and Renault were unclear on Saturday. They could potentially combine operations in Europe, where the companies compete directly in small and midsize cars. One option could be developing the underpinnings of cars jointly and manufacturing vehicles in each other’s plants, both money-saving moves. Working together could also allow both companies to close plants.
In Europe, the two companies face tighter environmental regulations that are forcing carmakers to invest billions in electric vehicles and other new technologies that cut tailpipe emissions. Both are also struggling to gain ground in China, the world’s largest auto market, and have been slower than some rivals in developing autonomous vehicles.
Renault officials declined to comment.
An alliance with Fiat Chrysler could give Renault access to the US market, where it currently has no presence. It was not clear how Nissan, Renault’s partner of nearly 20 years, would fit into a tie-up with Fiat Chrysler.
Renault needs Nissan, the dominant performer in the alliance, to continue contributing to Renault financially as the French automaker’s performance slips in Europe.
Carlos Ghosn, the former chief executive of both Renault and Nissan, had sought to tie the two companies more closely by floating the idea of a merger or the creation of a joint holding company to face stiffening market competition.
But the ties between the companies have frayed since November, when Ghosn was arrested and charged with financial wrongdoing in Japan, then ousted from his posts by both companies.
2019 New York Times News Service
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DETROIT, United States - Fiat Chrysler said on Tuesday it will use technology from Alphabet Inc's Google and Samsung to connect all its vehicles by 2022, providing music and video and facilitating future car-sharing and self-driving capabilities.
Fiat Chrysler Automobiles (FCA) will use Google's Android operating system globally instead of a mixture of software that varies by region, a spokesman said. The automaker will also use a cloud-based digital platform from Samsung Electronics Co Ltd's Harman unit.
Unlike its rivals General Motors Co and Ford Motor Co, FCA has spent virtually nothing on developing self-driving vehicle technology. This saves the company large amounts of money, but makes it reliant on outside parties to provide technology and systems.
FCA said it will launch the new capabilities in the second half of 2019.
The company said the system will aid owners "by predicting maintenance needs, locating fuel and charging stations, receiving traffic prompts and restaurant offers and providing live customer-care assistance at the push of the button."
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