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‘Fiat Chrysler, Renault $40bn merger is no done deal’

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Indications are that the Fiat Chrysler’s proposed $40 billion merger with Renault, which would create the world’s third-largest automaker, is far from a done deal.

The merger, announced Monday, is fraught with “significant execution risks” that could scuttle it altogether, according to Moody’s Investors Service. If the deal gets done at all, it will take a minimum of a year and up to 18 months to complete, according to an executive at Fiat Chrysler briefed on the negotiations.

The companies both have complex business models — particularly French automaker Renault’s alliance with Japan’s Nissan Motor and Mitsubishi — and powerful executive teams, which complicates choosing leaders for the combined company, said Joe Phillippi, president of AutoTrends Consulting.

The deal comes at a critical time for the automakers. Global sales are slowing after nine years of growth, and the industry is trying to come up with extraordinary amounts of cash to invest in autonomous driving and electric vehicles.
‘Historic deal’

Jim Press, the former deputy CEO for Chrysler Group, called it a “historic deal” that will likely be followed by others in the industry.

“The consolidation in the global auto business is something that has to happen,” he said on CNBC’s “Closing Bell” on Tuesday. “The pressure on profits is increasing at a time when the investments required for the new technology of autonomous vehicles and electric transition, all of that is adding a significant burden on investments.”

The Italian-American automaker has offered Renault a 50-50 merger of equals that would create an 11-member board split equally between Renault and Fiat Chrysler, with one seat going to Nissan. Fiat Chrysler’s shareholders would receive a special dividend of 2.5 billion euros (about $2.78 billion) to account for Fiat Chrysler’s higher market value. Existing shareholders of both automakers would get half of the combined company.

Fiat Chrysler said the deal would save an average of roughly 5 billion euros (about $5.57 billion) a year without closing any plants, which is an important detail that should help smooth the deal with unions, politicians and regulators. France’s Finance Minister Bruno le Maire told RTL radio on Tuesday he wants “four guarantees,” including “the preservation of industrial jobs and sites in France.”

Shaky ground
The deal is significantly complicated by the French automaker’s role in the Renault-Nissan-Mitsubishi Alliance. Collectively, the alliance forms the world’s second-largest automotive group, with 2018 sales of 10.8 million vehicles.

Renault merging with Fiat Chrysler would create the world’s third-largest automaker, with 8.7 million in annual sales.

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