LONDON (Reuters Breakingviews) - Peugeot Chief Executive Carlos Tavares may be the biggest winner from the collapsed merger talks between rivals Fiat Chrysler Automobiles and Renault. An alternative deal between the Italian-American carmaker and Tavares’ 19 billion euro group would have a few features to recommend it over the stalled Renault combination.
Fiat Chairman and controlling shareholder John Elkann withdrew a proposed 50:50 merger late on Wednesday night after the second inconclusive Renault board meeting in as many days. Fiat concluded that “political conditions in France” made it unviable. The French state owns 15% of 15 billion euro Renault.
A tie-up between Fiat and Peugeot could be easier to negotiate. True, Tavares’ group is also backed by France, which like the founding Peugeot family and Chinese partner Dongfeng Motor Group has a 12% stake and the right to propose two board members. Yet those shares only had 10% of the voting rights at the end of 2018, compared with the state’s 29% at Renault. And the Peugeot family and Dongfeng’s 20% voting stakes dilute the government’s influence. France has historically been less meddlesome at Peugeot than Renault, where in 2015 it executed an overnight raid to secure double voting rights.
Crucially, Peugeot’s larger size and 9.3 billion euro cash pile, using Refinitiv consensus estimates for end-2019, would probably make for a cleaner transaction than the delicate Renault-Fiat merger of equals. Assume Tavares offered a 20% premium over Fiat’s share price before the Renault offer. He could pay 65% of the 21.3 billion euro equity in cash and keep net debt minimal at the combined entity, according to a Breakingviews calculation. Peugeot shareholders would own 71% of the new group.
Elkann’s stake would sink to 8% - below the Peugeot family, French state and Dongfeng’s hypothetical 9%. He might not consider less influence a problem though, as he and the two other large stakeholders could outvote Paris. Besides, his holding company would get a 4.1 billion euro cash payment, and an easier partial exit from the troubled auto industry. That might seem more appealing than getting stuck in a difficult 50:50 marriage with the French government for the foreseeable future.
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