seem to be moving toward a desperately needed reboot of their global alliance, but there are major roadblocks ahead.
The two are in talks that could lead to Renault’s cutting its stake in Nissan, according to The Wall Street Journal. Renault’s outsize influence in the alliance—it owns 43% of its Japanese partner with voting rights, while Nissan owns only 15% of its French partner, and has no voting rights—has always grated on Nissan, especially given that the Japanese company sells more cars.
Renault has been reluctant to cut its stake, but now has a reason to go ahead: A more harmonious relationship with Nissan would allow it to restart deal talks with Fiat Chrysler. The Italian-American car maker withdrew its merger proposal in June after the French government, which owns 15% of Renault, worried that Nissan wasn’t completely on board. Yet the bosses of both Fiat Chrysler and Renault reiterated the logic of a deal alongside their most recent quarterly results, while stressing that they weren’t in talks.
Apart from smoothing the relationship, cutting the stake would free up capital for Renault, potentially helping to negotiate more favorable terms with Fiat Chrysler. Renault’s shares jumped at the open Monday before giving up their gains on a weak day for stocks. Nissan’s fell 4.3%: Investors may be worrying that Renault will be able to place its shares only at a discount.
The big obstacle remains the French government: President Macron suggested in June that the shareholdings weren’t up for negotiation.
Nissan’s stock price, at its lowest since 2012, is one problem. In late July the company reported a 99% drop in operating profit for the April-June quarter and said it would cut 12,500 jobs, or 9% of its global workforce, mainly due to problems in the U.S. that have nothing to do with Renault. Ideally the French company would wait for a recovery before trimming its stake.
Another problem may be unrealistic expectations at Nissan, which is pushing for Renault to reduce its holding to just 5% to 10%, according to The Wall Street Journal. But Renault may need to stay above 20% to avoid an embarrassing write-down of its entire Nissan stake, which is kept on its books at €20.6 billion ($23 billion)—more than double its market value.
If Renault and Nissan do eventually negotiate a settlement, including a better balance of shareholdings, it could draw a line under the disastrous performance of both stocks since the arrest of their former Chairman Carlos Ghosn last November. Given the complications, though, investors are wise to keep their expectations in check.
Write to Jacky Wong at Jacky.Wong@wsj.com and Stephen Wilmot at email@example.com
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