Morningstar | Fiat Chrysler Withdraws Renault Merger Proposal; Maintaining FVEs: FCA at EUR 28 and RNO at EUR 90
No-moat-rated Fiat Chrysler has withdrawn its Renault (also no-moat-rated) merger proposal. Renault's Board met on Tuesday and Wednesday, each resulting in an announcement that a decision would be postponed. In the last press release, the Board said that it, "was unable to take a decision due to the request expressed by the representatives of the French State to postpone the vote to a later Council." Shortly after, Fiat Chrysler issued a press release stating that, while the company believes the proposal was structured to "deliver substantial benefits to all parties," the company said, "the political conditions in France do not currently exist for such a combination to proceed successfully." Fiat Chrysler further commented that it would "deliver on its commitments through the implementation of its independent strategy."Our fair value estimates on the 5-star-rated shares of each, Fiat Chrysler and Renault, remain unchanged at EUR 28 and EUR 90, respectively. Media reports said that the French State, which has two seats on Renault's Board and holds a 15% equity stake in the company, had sought more control over the combined entity's management and French assets, including a French headquarters, stronger job guarantees, and a special dividend for Renault. In our view, this is a lost opportunity. The combined company, including Alliance partners Nissan and Mitsubishi, would have been the world's largest automaker by a wide margin, leap-frogging Volkswagen and Toyota, which sold more than 10 million light vehicles last year, with total 2018 sales of around 15 million. With that degree of scale, the merger would have changed the global industry landscape, perhaps motivating other automakers to reconsider their own national champion status in favor of economies-of-scale that softens the blow from the industry disruption of electrified powertrain and autonomous driving technologies. Or maybe…Fiat Chrysler has lit a match that might yet set a fire.
Fiat Chrysler Automobiles is a holding company. Through its subsidiaries, Co. is an international automotive group engaged in designing, engineering, manufacturing, distributing and selling vehicles, components and production systems. Co. has operations in approx. 40 countries and sells its vehicles directly or through distributors and dealers in more than 140 countries. Co. designs, engineers, manufactures, distributes and sells vehicles for the mass market under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia and Ram brands and the SRT performance vehicle designation.
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