Daily Management Review

Renault To Propose Merger With Nissan Despite Being Rejected In Informal Proposal


Renault To Propose Merger With Nissan Despite Being Rejected In Informal Proposal
A report published on Friday by Nikkei claimed that the Japanese car maker Renault will propose to its Japanese auto partner Nissan the setting up of a holding company in which the French government will hold 7 per cent stake in the new merged entity.
An informal merger proposal by Renault was rejected by Nissan on April 12, according to an earlier report this week by Nikkei. However despite this, the issue is being pressed by the French carmaker and it is set to make a formal proposal to Nissan's board very soon.
According to the new merger proposal, the new holding company would comprise of Nissan and Renault shareholders with each group having equal stakes and the holding company would own 100 per cent of both the car making companies, along with equal number of representations at the board of the new proposed holding company. According to the plan, the 15 per cent stake of the French government in Renault would be transformed into a 7 per cent stake in the new holding company.
According to the Nikkei report, the formal proposal would also be rejected by Nissan which would can result in a clash about the future relationship between the two companies as well as put a question mark over the future stability of the largest car alliance in the world - in which another Japanese auto company Mitsubishi is also a members apart from these two companies.
The indirect influence of the French government over the operations and functioning of Renault has been a cause of concern for the Japanese company for long.  Nissan’s 43.3 per cent is owned by Renault where as just 15 per cent of Renault is owned by the Japanese car maker with non-voting rights.
Tensions first witnessed between the two companies when the French government first expressed its desire to make the alliance between the two companies "irreversible". While Renault sees its strategy as a means to cement the alliance.
But such intentions have been opposed inside Nissan for quite some time now. This was reportedly the aim of the former chairman of the companies Carlos Ghosn. 
Nissan has been demanding a more equal capital structure in the alliance because a greater part of the combined profits are generated by Nissan and its market value of about 3.8 trillion yen ($34 billion) is many times greater than the $2.2 trillion market value of Renault.
Proposal of a simplified structure for the holding company and the location of the headquarters of the new entity being outside of both Europe and Japan is aimed to be made by new Renault Chairman Jean-Dominique Senard which he believes could address some of the concerns of Nissan. One of the options for the headquarters of the new company as proposed by Renault would be Singapore. According to the proposal, 34 per cent stake in the Mitsubishi Motor would be owned by Nissan.
The proposal or idea of the merger was first informally proposed by Senard around the time of the Alliance Operating Board meeting on April 12 – an event of the alliance that is attended to by the top executives of both the companies as well as those from Mitsubishi Motors. That idea was summarily rejected by new Nissan President and CEO Hiroto Saikawa.