November 19, 2018 / 4:35 PM / 22 days ago

Breakingviews - Renault is biggest loser in Carlos Ghosn debacle

Carlos Ghosn, Chairman and CEO of Renault, attends the French carmaker Renault's 2017 annual results presentation at their headquarters in Boulogne-Billancourt, near Paris, France, February 16, 2018. REUTERS/Gonzalo Fuentes

LONDON (Reuters Breakingviews) - Renault looks like the biggest loser in a scandal that has engulfed Carlos Ghosn. The French carmaker’s chief executive is being ousted as chairman of alliance partner Nissan, which said on Monday that he under-reported his salary. That’s bad for Renault since the Japanese company would have greater clout were a lopsided partnership to now be renegotiated.

The Paris-based carmaker on Monday lost about 1.8 billion euros, or 10 percent, of its market value using Friday’s closing price. Some investors may fear that Ghosn’s impending exit in Japan means the collapse of the Renault-Nissan-Mitsubishi alliance, which he single-handedly drove for almost two decades.

That cloud may have a silver lining. Renault owns about 43 percent of Nissan, which was worth 30.5 billion euros before the news about Ghosn surfaced. After deducting, say, 30 percent to account for the scandal and the difficulty of offloading such a huge stake, Renault’s share of Nissan would be worth 10 billion euros. Meanwhile, the French group’s own equity value should in theory be 12.4 billion euros based on a modest five times earnings multiple and Morgan Stanley’s forecast for Renault’s 2019 earnings. The combined total is 22.4 billion euros. Yet Renault’s current market capitalisation is three-quarters of that.

A complete unwinding of the cross-shareholdings is, however, unlikely. Nissan CEO Hiroto Saikawa said on Monday the overall partnership should not be affected, and a similar message came from French Finance Minister Bruno Le Maire. Even if that were to change, a bulk sale of Renault’s Nissan stake might incur a much bigger discount, and leave Renault behind as a subscale player focused on slower-growing markets like France.

More likely, Saikawa wants to renegotiate the terms of an alliance that has, under Renault CEO Ghosn, allowed the French group to punch above its weight. Until last year Ghosn ran both companies. And Renault’s 43 percent stake is much bigger than Nissan’s 15 percent reciprocal holding. The French group’s income from its Japanese shares will account for two-fifths of group pre-tax profit in 2020, Morgan Stanley estimates. Nissan’s revenue per employee and capital spending per employee have been consistently higher than Renault’s since 2009. With Ghosn on the way out, the Japanese partner can better exploit its economic heft.

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