Auto Shares Surge As Fiat, Renault Confirm Merger Talks

With President Trump in Japan for a state visit and most of Europe headed to the polls to vote in the quinquennial EU Parliamentary elections, there was enough news to keep market watchers occupied during what was supposed to be a quiet holiday weekend in the US. 

But on top of these political headlines, on Saturday afternoon, the news broke that Italian-American carmaker Fiat Chrysler had approached France's Renault with a merger proposal that would leave the shareholders of each carmaker with half of the combined company, in a tie-up that would create the world's third-largest automaker by production.

Fiat

Several updates followed, and according to the most current reports published Monday morning, Renault - which has been struggling to forge a new path after the arrest of CEO Carlos Ghosn soured relations with Nissan, its longtime partner - was seriously considering the offer. Fiat confirmed on Monday that it made the "transformative merger" proposal, which notably comes during a period when car sales are slumping around the world and automakers are lying off tens of thousands of employees.

Here's more from the New York Times:

Both companies talked over the weekend about a strategic partnership. But proposing a full-blown merger illustrates the urgency that automakers feel as they stand on the brink of what may be the biggest period of transition since the early days of the automobile.

Fiat Chrysler Automobiles said in a statement that it was motivated by "the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry in areas like connectivity, electrification and autonomous driving."

Renault said Monday that its board would consider Fiat’s "friendly proposal."

Confirmation of the merger talks sent shares of European automakers 1.8% higher in early European trade, while shares of both Fiat and Renault gapped higher from their closing levels on Friday, a sign that investors are readily embracing the merger.

Chrysler

However, before traders get too enthusiastic, there are many delicate aspects of a merger between the two European auto giants that still need to be worked out. Given the French government's stake in Renault (the State of France is its largest shareholder), the involvement of political leaders in Paris and Rome is almost inevitable, as both sides will likely fight to save as many jobs as possible. Already, one senior League lawmaker told the Italian press that Italy might consider buying a stake in Fiat Chrysler to match France's stake in Renault to protect against job cuts.

"We will focus particularly on the national interest," senior League lawmaker Claudio Borghi said. "Given the state presence in Renault, the fact that two companies of this size plan to merge has to be looked at with special care."

But as automakers look for ways to consolidate to ease the inevitable transition from combustion engines to electric-powered vehicles, we imagine shareholders and customers are looking forward to the innovations a combined Fiat-Chrysler-Renault will inevitably produce.