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Business deals

Renault board to reconvene on Fiat merger talks on Wednesday

French carmaker says $12m possibly misappropriated by Nissan venture tied to Ghosn

Renault's board of directors put off until Wednesday a decision on whether to enter merger talks with Italian-American peer Fiat Chrysler Automobiles.   © Reuters

TOKYO/PARIS -- Renault's board of directors will reconvene late on Wednesday to discuss a decision on whether to enter merger talks with Italian-American peer Fiat Chrysler Automobiles, as it reviews such details as who would occupy the top posts of the integrated company.

Renault said on Tuesday that the company will "continue to study with interest the opportunity of such a combination and to extend the discussions on this subject." The deal has the potential to radically redefine the French automaker's relationship with Japanese partner Nissan Motor.

Renault also released a report on Tuesday saying that 11 million euros ($12.3 million) may have been misappropriated by a joint venture with Nissan Motor, and that it will consider legal action. The sum includes payments ordered by former CEO Carlos Ghosn.

The possible lawsuit would be launched in the Netherlands, where the joint venture Renault-Nissan BV is based.

If Renault's board decides to pursue official discussions with FCA, the two companies will hold a joint news conference within a few days. The newly integrated company would be the third-largest automaker globally, with a combined output of roughly 8.7 million vehicles a year. The 50-50 merger likely would generate more than 5 billion euros ($5.6 billion) in annual savings.

For Nissan, the main concern is how a merger would impact its relationship with Renault. The current contract signed with Renault lets Nissan install one more director to its board than the French partner. In turn, Renault can name executives at the Japanese automaker from the chief operating officer position on up.

Renault, whose top shareholder is the French government, owns a 43.4% share in Nissan. The Japanese automaker holds a 15% stake in Renault. But under the agreement, any unwarranted intervention by Paris triggers a provision that lets Nissan buy a larger stake in the French automaker. If Nissan raises its interest to 25%, Renault's voting rights in Nissan would become invalidated under Japanese law.

By including provisions favorable and unfavorable to both companies, the document has helped to maintain a level of equilibrium between Nissan and Renault. A merger with FCA, and a transfer of the alliance agreement to the combined entity, would upend the current dynamic.

During an interview on May 30 with Nikkei, Renault Chairman Jean-Dominique Senard indicated that the Renault-Nissan agreement should remain a separate matter from negotiations with FCA. Senard appears intent on focusing on talks with FCA, but Nissan President and CEO Hiroto Saikawa believes the proposed merger would have wide repercussions.

"It would impact various transactions, such as business contracts and shared assets," Saikawa said Monday. "I would like to discuss matters that need to be discussed."

Nissan's chief released a statement the same day, saying that the merger "would require a fundamental review of the existing relationship between Nissan and Renault."

If Renault were to integrate with FCA, Nissan's stake in the combined entity would decline to 7.5%. Renault "would become a completely different company," Saikawa said Monday. "We would need to review various matters," including the imbalance in the financial relationship.

Senard said that Nissan could gain voting rights in the merged company. Nissan should not view the smaller stake as problematic, the Renault chairman said, citing benefits for all the alliance members, including Mitsubishi Motors.

Any negotiations between Renault and FCA are not guaranteed to proceed smoothly. The French government wants a commitment that Renault personnel will continuously occupy top positions at the merged company. A proposal has been floated that would install Senard as CEO of the new company, while FCA Chairman John Elkann is seated as the chairman.

Finance Minister Bruno Le Maire insisted in a May 28 radio appearance that any such merger should reflect the interests of France.

FCA's first priority is to eliminate the debt it has shouldered since the company came into being in 2014. Because of the liabilities, the automaker has delayed investments in electrification and other next-generation technology. A merger with Renault could grant FCA access to Nissan tech.

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