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Can Japan carmaker lift 14-year spell in France?

Carlos Ghosn, chief executive of Renault and Nissan, unveils the French carmaker's new compact in Chennai in May.

TOKYO -- Japan's Nissan Motor and its largest shareholder, France's Renault, has begun reviewing their capital alliance, out of the blue. Simply put, the automakers are discussing the possibility of attaching voting rights to the Renault shares that Nissan owns.

     This news is largely welcomed by those holding shares in the Japanese automaker. That said, there is no telling what will happen, as it signals the involvement of the French government -- Renault's biggest shareholder.

     Given that the French government could get in the way of the move, Nissan shareholders will keep a close eye on the nerve-wracking game between Paris and Carlos Ghosn, chief executive of both Nissan and Renault.

     Nissan has a 15% stake in Renault, making it the second-largest shareholder of the French carmaker. However, Nissan has had no voting rights at Renault shareholders meetings. In 1999, then-teetering Nissan received capital injections from Renault. It has also been about 14 years since the "unequal treaty" took effect.

     The misfortune is attributable to French corporate law, which prevents a company that is at least 40% owned by another entity from having voting rights on shares it owns in the partner. Renault has a 43.4% stake in Nissan, an equity-method affiliate. The two companies are expected to explore the idea of bringing that below 40%. Said one fund manager, "This is a Nissan-favored strategy, which has been rarely seen."

Growing friction

In recent years, Nissan has been painting a rosy picture, while Renault has been posting weak earnings.

     In June, the evil practice between Renault and Nissan came under stronger-than-ever criticism from small investors at Nissan's shareholders meeting. Their question is, why doesn't Nissan take a new look at the Renault-favored relationship?

     The important point here is that the government of socialist President Francois Hollande has been prioritizing French employment.

     In 2014, Nissan said it would start making a new Micra, its mainline subcompact, for markets in Europe, the Middle East and Africa, at a Renault plant in France. The announcement caused a heavy backlash, as the shift would mean less production in India. An analyst at a foreign-affiliated brokerage said production costs have to be cheaper in India and that the idea must be to maintain the capacity-utilization rate at the Renault plant.

     In April, Renault shareholders approved a plan that automatically doubles the voting power attached to long-term investors who hold for more than two years, under the so-called Florange law that Paris enacted last year. The upshot is the French government's share of voting power at Renault rising to nearly 30% in spring. 

Game changer

As for Ghosn? "It would be appreciated if he would make up his mind and lead a rebellion against the French government," said a former Nissan employee who holds shares in the company. According to this investor, "Ghosn so far has been somewhat overpowered by the French government."

     But would it have a negative impact on the Japan-French auto alliance? Probably not.

     In an interview with The Nikkei, Ghosn said a small company fails many competitions, and consolidating operations across the two companies is important. He made the comments ahead of Renault's controversial shareholders meeting. There would be no changes in the cooperative framework, including human resources as well as research and development activities between the two automakers.

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