Nissan Seeks Better Terms in Renault Merger Talks

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Nissan Seeks Better Terms in Renault Merger Talks

  • Partners are discussing combination, or changing shareholdings
  • Ghosn seeks to make alliance ‘irreversible’ before retiring
Bloomberg’s Ma Jie reports on the prospects for the Nissan-Renault alliance.

As Japan’s Nissan Motor Co. and Renault SA of France discuss ways -- including a possible merger -- to strengthen their ties, Nissan is resisting a combination unless the company gains more clout in key areas, according to people with knowledge of the matter.

Nissan’s top managers believe they have the better engineering capabilities and want to lead crucial operations such as product development, said the people, who asked not to be identified because the deliberations are private. Chief Executive Officer Hiroto Saikawa said as recently as this week that he wants Nissan to maintain some autonomy while still reaping the benefits of working with Renault.

Hiroto Saikawa

Photographer: Andrew Harrer/Bloomberg

If the two carmakers can’t agree on the terms of a merger, changing their lopsided cross-shareholding arrangement -- letting Nissan boost its 15 percent stake in Renault and gain voting rights, for example -- could be a way to solidify their relationship while enabling the Japanese to maintain independence, the people said. Renault, which made less profit and is less valuable, owns about 43 percent of Nissan and can vote on corporate matters.

The companies are mapping out the future of the two-decade alliance and firming ties before a new generation of management takes over. Carlos Ghosn, chairman of Nissan and Renault, and Saikawa are both 64. Ghosn agreed in February to stay on as Renault CEO for the next four years. Both want to make sure that the two companies, which together generate more than $170 billion in annual revenue, will remain close partners regardless of who’s in top management.

Nissan and Renault representatives declined to comment. Renault shares gained 3.5 percent in Paris Thursday. In Tokyo, Nissan shares rose as much as 0.9 percent to the highest intraday level in more than two weeks.

Ghosn Seeks Renault-Nissan Deal for When ‘Mere Mortal’ Steps In

Nissan’s Saikawa has publicly downplayed the need to merge while saying he wants to keep the alliance intact. The CEO said on Thursday that a decision on the alliance may be made within a year.

“The answer we seek is, we need to ensure the autonomy of the companies will be maintained in a way we are having now,” he told reporters after Nissan reported earnings on May 14. “Even in the future leadership may change, the same pattern of work will be continued in an environment and the question is how can we ensure that environment.”

Neither side wants to be viewed as selling to the other. From Renault management’s point of view, the company invested in Nissan in 1999 and saved it from failure. The French company sells fewer vehicles worldwide and earns less, but at higher profit margins.

Nissan has a market value of about $43 billion and reported about $5.2 billion in operating income for the most recent fiscal year. This compares with Renault’s $32 billion market capitalization and $4.4 billion in operating profit for 2017.

Who Runs the Show?

Nissan also has a major presence in the U.S., the auto industry’s most lucrative market because of the popularity of larger, expensive trucks and sport-utility vehicles. Renault is absent.

“I spoke about the irreversibility of the alliance, which means that we have a system and the process by which this alliance goes on independently of who is leading it,” Ghosn said in an interview last month. “I need to take into consideration the fact that there are some reasonable concerns of people asking me: ‘What do we do? Who designates the alliance?’”

One approach that’s been discussed is a transaction in which a single stock would be created that would essentially cash out Nissan and Renault’s respective shareholders, Bloomberg News reported in March. If Ghosn can’t get the Nissan board and shareholders to agree, then they could use lesser means to ensure closer cooperation. Increasing Nissan’s stake in Renault to 25 percent would enable the Japanese automaker to gain voting rights with its French partner, Saikawa has said.

Alliance Synergies

Under Ghosn, the automakers have been increasing joint governance by placing executives from each company in charge of areas including purchasing and manufacturing, as well as working together to develop cars.

About one-third of the powertrains used by the two automakers are shared, and they’re planning to boost that ratio to three-quarters by 2022 and find 10 billion euros ($11.8 billion) in annual synergies within that span.

As for negotiating an outright merger, the two companies will wait at least until next month when Renault, Nissan and Mitsubishi Motors Corp. -- Nissan acquired a 34 percent stake in Mitsubishi Motors in 2016 -- hold their annual meetings. That’s when investors will likely endorse Ghosn’s election to another four-year term at Renault.

— With assistance by Nao Sano, and Ania Nussbaum

(Updates with Nissan shares in fifth paragraph.)