Nissan pushes back on Renault’s renewed efforts to merge

Bloomberg Tokyo | Updated on May 13, 2019 Published on May 13, 2019

Nissan Motor Co. is opposing renewed efforts by alliance partner Renault SA to merge under a holding company because such a structure wont help turn the Japanese carmaker around, a person with knowledge of the discussions said.

Talks have been ongoing since Renault Chairman Jean-Dominique Senard first made an informal proposal to Nissan Chief Executive Officer Hiroto Saikawa in April, the person said, asking not to be identified because the discussions arent public. Nissan rebuffed the idea then and has continued to oppose it, the person said.

News of the talks comes as Nissan is set to report on Tuesday its lowest annual operating profit in a decade, hurt by slumping U.S. sales, aging models and a product cycle thats out of sync. The merger proposal came after the most tumultuous few months in the companies two-decade partnership, which was shaken by the shock arrest of the alliances chief architect and former chairman, Carlos Ghosn.

Nissan declined to comment on the discussions. Representatives for Renault didnt immediately respond to requests for comment.

Possible outcomes of a merger

A merger under a holding company wont help solve Nissans current operational issues, such as high fixed-costs, unprofitable models and flawed Datsun and Infiniti brand strategies, the person said, adding that a new structure will cause delays in addressing these issues because of logistical and regulatory hurdles. Combining the companies under a single entity wont add benefits of scale because they already share purchasing and development costs, the person added.

Japanese broadcaster TBS reported earlier on Monday that Renault had made a formal offer to merge with Nissan under a holding company structure, citing unidentified people. TBS didnt elaborate on what it meant by formal, or when the proposal was made. The Japanese government has also spurned efforts by Renault to engage in merger talks, according to the Financial Times.

No formal proposal has been made to Nissan, according to a person close to Renault. The Japanese carmaker hasnt received a formal merger proposal from Renault, Nissan executive Hitoshi Kawaguchi said.

Although the French automaker agreed in 2015 not to interfere in the Nissan boards decision-making, the Japanese companys financial weakness could give Renault an opening to push harder for a merger. The combination would give Renault and Nissan heft as the industry is going through a radical shift toward electric and self-driving vehicles.

The proposal revived by Senard calls for a holding-company structure, which would provide for equal ownership and board representation for Renault and Nissan, people familiar with the situation have said. While the aim of such a structure is to gain Nissans support, Saikawa rejected a request last month by Senard to reconsider a merger, people familiar have said.

The French and Japanese manufacturers, along with third partner Mitsubishi Motors Corp., make 10.8 million cars each year -- nearly double Ford Motor Co.s global deliveries. The alliance -- currently held together by a series of cross-shareholdings -- would be second only to Germanys Volkswagen AG, with Toyota Motor Corp. a close third.

Auto manufacturers are grappling with investments needed to keep pace in the race to develop self-driving and electric vehicles, while ride-sharing services such as Uber Technologies Inc. nip away customers and trade tensions roil markets.

Nissan’s targets

Nissan last month warned investors of bad times ahead as it cut preliminary profit for the year ended March to 318 billion yen ($2.8 billion), a 30% decline from the previous guidance, which itself had been lowered. That would mark the first time the Japanese carmaker earned less than Renault in a decade.

Nissan may also announce that its paring its mid-term revenue targets, according to a person familiar with the matter, who didnt want to be identified discussing company business. The carmaker will lower its fiscal 2022 revenue target to about 14 trillion yen from the existing target of 16.5 trillion yen and cut its operating margin target to about 6% from 8%, the person said, confirming an earlier report in the Asahi newspaper. Nissan declined to comment on the Asahi report.

Renault’s options

Renault is treading carefully in its relations with Nissan. Their cross-shareholding is governed by an agreement known as Rama, which was last updated in 2015 with extensive governance provisions that have never been made public. Any unilateral move by either Renault or Nissan to tip the balance could trigger an all-out war for control.

Renault owns 43% of Nissan the bigger partner which in turn owns 15% of Renault, with no voting rights.

The 2015 agreement granted Nissan guarantees preventing Renault from interfering in its governance, a move the Japanese carmaker considered necessary because the French government is Renaults most powerful shareholder.

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Published on May 13, 2019
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