Feb 6, 2023
Renault, Nissan Agree on Landmark Deal to Reshape Alliance
(Bloomberg) -- Renault SA and Nissan Motor Co. are finally done reshaping their complex relationship. The new status: better, but still complicated.
Following almost a year of discussions, the partners presented a deal in London Monday that will see Renault lower its stake in Nissan and plans for a range of new models alongside junior alliance partner Mitsubishi Motors Corp. There’s still scope, though likely limited, for more flareups until the end of the year when the pact is set to close.
“This new deal is based on business opportunities and simple, clear rules,” Chief Executive Officer Luca de Meo said during a joint Bloomberg Television interview with Nissan President Makoto Uchida. “What we have now today in terms of business opportunity is much bigger than what we have ever done in the last 10 years.”
The agreement loosens the reins on a nearly 24-year-old partnership rocked by tensions and looking stale in the industry’s wrenching transition to electric cars and sophisticated software. To keep up, de Meo is pursuing for Renault to split its business and work with new partners. This includes pooling its legacy combustion-engine assets with China’s Zhejiang Geely Holding Co., working with Qualcomm Inc. and separately listing Ampere, its new entity for electric cars.
“The key risk is that Renault might trade a known complexity for another one,” Stifel analyst Pierre-Yves Quemener said.
De Meo’s plan for Renault, first mooted in February last year, triggered the talks to reshape the alliance, though the 55-year-old grew exasperated late last year with lack of progress and at one point said he was ready to pursue his goals with or without Nissan. On Monday, de Meo said his talks with Uchida “felt longer” than since last May, with Uchida retorting he was speaking with de Meo more than with his family during the past months.
The source of much of the frustration was rooted in the imbalance of Renault and Nissan’s capital ties where the French carmaker owns a 43% stake with voting rights while its Japanese partner holds 15% without voting rights. The setup stems from the time Renault saved Nissan with a cash injection and sent in Carlos Ghosn to turn around Nissan and build up the alliance. Since then, Nissan has gone on to become the bigger carmaker selling 3.3 million vehicles last year compared to its partner’s 2.05 million.
Five years ago, fears that Ghosn — at the time, the chairman of both companies and its alliance — would seek closer integration including a merger was a factor in his ouster and arrest on charges of underreporting compensation.
Aside from Renault lowering its stake in Nissan, the Japanese company intends to invest in Renault’s electric-vehicle business Ampere for as much as a 15% stake. Mitsubishi will also weigh investing in Ampere. Renault will retain a “substantial” majority in the company, Chairman Jean-Dominique Senard said.
The partners will collaborate on several industrial projects that could generate hundreds of millions of euros in value for the companies over time, stretching to billions “if things go very, very well,” de Meo said. “The relevance of these projects has been underestimated so far.”
The new ventures include developing several new models at production sites in South America and India from joint platforms, as well as Europe, including an electric van dubbed FlexEVan. In Renault’s core region, the partners will also collaborate on EV charging and recycling.
Today’s agreement caps months of fraught negotiations made more difficult by different time zones, with crucial meetings often taking place by video conference in the middle of the night. Cultural differences between France and Japan led to frequent misunderstandings, further exacerbating the mutual suspicion that has dogged the alliance for years.
By late last year, Nissan’s independent directors were still expressing concern over Renault’s plans to license hundreds of jointly developed patented technologies to other players, including China’s Geely. They were also taken aback by the lack of details provided by Renault on the future scope of Ampere and didn’t want to be pressured into making a decision quickly, the people said.
Tatsuo Yoshida, Bloomberg Intelligence analyst, said:
“For Nissan, greater freedom in management is a positive development. The projects are essentially initiatives that have been stagnant until now, and the alliance should already have been working on them. If Nissan buys back its own shares and then cancels them, that would be positive for Nissan’s stock price, but considering its current cash, that unlikely to happen right now.”
Board members from the three companies met in person in Japan in mid-November to discuss the alliance’s future but tensions persisted, people familiar with the situation said at the time. Talks risked collapsing altogether as Renault moved ahead with a capital markets day to present its revamped strategy, based on outside investments. At the event, de Meo said the strategy “works by itself,” even without Nissan.
Aside from efforts at the company level, a letter of reassurance by French Finance Minister Bruno Le Maire that the government — Renault’s most powerful shareholder — backed the rebalancing and would no longer push for a Nissan takeover was also key to getting the nod of Nissan’s independent directors, the people said.
Renault plans to transfer 28.4% of Nissan shares into a French trust, with voting rights to be neutralized for most decisions. The company will keep on benefiting from Nissan dividends until the stake is sold. The trustee will be instructed to sell the shares when it will be “commercially reasonable” in a coordinated and orderly process. Moreover, Renault has no obligation to sell the stake within a specific time frame.
“A well-working alliance is highly desirable for economies of scale and cost avoidance, but it remains to be seen whether a smaller stake in Nissan can achieve this,” said Henning Cosman, an analyst at Barclays Plc.
--With assistance from Julien Ponthus, Ania Nussbaum, Tsuyoshi Inajima and Masatsugu Horie.
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