Fiat Chrysler Gains 8% Amid Merger Talks With Renault

France-based automaker Renault confirmed Monday it will "study with interest" an acquisition proposal made by Fiat Chrysler Automobiles NV FCAU.

What Happened

Fiat Chrysler detailed in a public letter its desire to merge with Renault to create the world's third latest global automaker that would combine for 8.7 million vehicle sales. The combined entity would be better positioned to become a global leader in the "rapidly changing" auto sector with a presence in "transforming technologies" like electrification and autonomous driving.

Fiat Chrysler said the combined entity would be 50 percent owned by its shareholders and 50 percent owned by Renault shareholders. The majority of the board of directors would be independent with a "balanced governance structure."

Why It's Important

The merger proposal calls for no plant closures and the combined entity is expected to realize more than 5 billion euros in established annual run rate synergies that are incremental to the existing Renault-Nissan-Mitsubishi Alliance synergies.

The savings are expected to come from a more capital efficient investment in common vehicle platforms, architectures, powertrains and technologies.

What's Next

If the transaction is approved, Fiat Chrysler investors will receive a 2.5 billion euro dividend payment to mitigate the gap in equity market values. Fiat Chrysler investors would receive a distribution of Comau's shares or another 250 million euro dividend payment if the Comau spin-off doesn't finalize.

The final agreements for the proposed combination will be negotiated and approved by both boards and subject to final approval by each company's shareholders.

Shares of Fiat Chrysler were higher by around 8 percent at $13.88 Tuesday morning, while Renault's Europe-listed equity was higher by nearly 2 percent at the same time.

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