March 27, 2019 / 12:45 PM / 3 months ago

Breakingviews - Fiat Chrysler might gain from M&A waiting game

A car with the Fiat logo badge is seen on display at the North American International Auto Show in Detroit, Michigan, U.S., January 16, 2018. REUTERS/Jonathan Ernst

MILAN/LONDON (Reuters Breakingviews) - Fiat Chrysler Automobiles might gain from playing an M&A waiting game. Already the subject of interest from Peugeot of France, the $24 billion carmaker could face a bid from a merged Renault-Nissan, the Financial Times reported on Wednesday. Such a deal would be tricky and take time. But patience could give FCA better options to solve its tech and Asian headaches.

The prospect of becoming part of an $80 billion global group could be tempting for FCA Chairman John Elkann. Joining forces with a merged Renault-Nissan would grant better access to Asia, where the Italian-American group is almost non-existent, and accelerate the transition to electric vehicles, where it also lags. A union with Peugeot, by comparison, ticks neither of these boxes.

Granted, the three-way deal seems a remote possibility for now. The requisite first stage of merging the French and Japanese companies would require a change of heart by either Nissan or the French government. The state owns 15 percent of Renault, which in turn owns 43 percent of Nissan, understandably raising Japanese fears of meddling by authorities in Paris. It’s also hard to see President Emmanuel Macron scaling back the government’s influence to help pave the way for a union with Nissan that could lead to French job losses.

Any subsequent deal with Fiat would require further cuts. Most of the expected costs savings essential to fund future high-tech developments would come from streamlining operations in Europe, where FCA and Renault together have roughly 85 production sites. European layoffs would not go down well with Italy’s anti-austerity government, nor with France’s “yellow vest” protesters. But those concerns are also a potential obstacle to a more immediate deal with Peugeot Chief Executive Carlos Tavares.

The reported interest from Renault-Nissan is a reminder that Elkann needn’t rush into a hasty tie-up. The next round of auto M&A, long predicted by late FCA boss Sergio Marchionne, is getting some traction. Political objections may diminish over time. If Elkann’s ultimate objective is for the Agnelli family to have a smaller slice of a bigger carmaking pie, he may want to bide his time.

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