Renault and Fiat Chrysler flirt with audacious mega-merger

Fiat Chrysler in tie-up talks with Renault: reports

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Fiat Chrysler on Monday proposed a merger with France's Renault to create the world's third-biggest vehicle maker, worth $40 billion, and a possible leader in electric and autonomous cars.

The transaction will be structured as a 50-50 ownership through a Dutch holding company, FCA said, adding that it would give Renault investors an implied premium of about 10 percent.

In a statement, Fiat Chrysler (FCA) said the planned merger would create a "world leader in the rapidly changing automotive industry with a strong position in transforming technologies, including electrification and autonomous driving".

The automaker said the collaboration would substantially improve capital efficiency for common global vehicle platforms, architectures, powertrains, and technologies and speed up product development.

The combined group would forge the world's third-biggest automaker, making some 8.7 million vehicles a year and trailing only Volkswagen and Toyota.

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The biggest gains in Europe were seen in vehicle manufacturing stocks after Fiat Chrysler Automobiles (FCA) and Renault confirmed they were discussing a merger. Renault's existing alliance, including numbers from partners Nissan and Mitsubishi, also reached this milestone. Fiat and Renault expect their joint annual "synergies" to amount to more than $5.6bn, coming from areas such as purchasing power.

Milan-listed Fiat Chrysler shares jumped 19% in early trade, while Renault stock leapt 17%.

Senard, the ex-Michelin boss who was drafted in to replace Carlos Ghosn in January after his arrest in Japan on charges of misreporting income, faces a delicate task to pull off a merger between companies representing interests from multiple countries.

If it goes ahead, the US$35 billion (S$48.1 billion) tie-up would alter the landscape for rivals including General Motors and Peugeot maker PSA Group, which recently held inconclusive talks with FCA, and could spur more deals.

The tie-up has been seen as potentially beneficial to both sides, giving Fiat Chrysler access to Renault's electric vehicle technologies while the French group could use Fiat's extensive operations in North America to tap into the United States market.

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The merger idea is the biggest corporate move so far by Fiat Chrysler chief executive Mike Manley, who took the position after the unexpected death a year ago of charismatic leader Sergio Marchionne.

"Carmakers have invested 25 billion euros (R404bn) on electrifying their fleets over the past eight years, and it's going to be 10 times that amount, 250 billion euros, over the next eight years", said Laurent Petizon, an analyst at Alix Partners.

Fiat Chrysler estimated that Nissan and Mitsubishi would make 1 billion euros in savings a year from the deal.

Perhaps the strongest hand in the deal is the government of France, a player which maintains a 15 percent stake in Groupe Renault. By combining their vehicle offerings, both automakers would effectively broaden their portfolios, creating a blanket of automobiles which cover every market segment from budget-conscious mainstream cars to luxury automobiles.

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