Jan 30, 2023
Nissan Resolves Renault Grievance Through Big Payoff for Partner
To finally get what it wanted from Renault SA, Nissan Motor Co. will have to pay up.
The partners are on the cusp of redefining the foundations of their decades-old alliance, with a framework deal to equalize their cross-shareholdings headed to their respective boards in the coming days.
For Renault, the merits of this milestone are clear. The French carmaker will give up a big chunk of its Nissan stake, but will do so over time and should end up with billions of euros in proceeds. It also has convinced its Japanese counterpart to become a strategic shareholder in the electric-vehicle and software business it’s carving out and seeking to take public as soon as the second half this year.
Nissan is getting what it’s long sought: to be on equal footing with Renault in terms of shareholdings and restore its voting rights. But to get Renault’s ownership down to 15% from 43%, analysts expect Nissan will end up buying some of its own shares from its alliance partner, in addition to purchasing a stake in its EV-and-software operation.
Evening out the shareholdings “has always been Nissan's deep desire,” said Tatsuo Yoshida, a Bloomberg Intelligence analyst. To fulfill this wish, he sees prospects for the company buying some of its own stock. “In an opaque environment, cash is king, and having less of it is going to be a concern.”
Chief Executive Officers Makoto Uchida of Nissan and Luca de Meo of Renault are betting they can get more out of an alliance that hasn’t lived up to its full potential by agreeing to some give-and-take in terms of control.
In addition to neutralizing a sizable portion of Renault’s current voting rights for most decisions Nissan makes, the Japanese company will regain voting rights for its 15% stake in its French partner, the companies said Monday.
“It corrects a wrong,” said Philippe Houchois, a Jefferies analyst who upgraded his rating on Renault to a buy in June. “For so many years, there was a massive imbalance between the reality of the cooperation and the capital structure of the alliance.”
Renault is agreeing to this in part because it wants to forge newer partnerships with companies both in and outside the traditional car industry. In November, it announced agreements to jointly own its carved-out combustion and hybrid powertrain company with China’s Geely Automobile Holdings Ltd., and to have chipmaker Qualcomm Inc. be a cornerstone investor in its EV and software business.
Renault will reduce its ownership of Nissan by placing shares currently worth about ¥544.1 billion ($4.2 billion) into a French trust that will sell the stock in an orderly process likely to play out over several years. Nissan may be willing to invest about $500 million to $750 million in Renault’s EV business, Bloomberg first reported in October, citing people familiar with the matter.
Importantly for Renault, it will continue to collect a dividend both from the shares it keeps outright and the stock placed in the trust.
While Uchida and de Meo are likely to emphasize the potential for Nissan and Renault to cooperate further for years to come when the two convene an event tentatively planned for Feb. 6, analysts are split on whether this is a new beginning for the alliance, or the beginning of the end.
Years of escalating tensions and backbiting came to a head after former leader Carlos Ghosn openly talked about merging the companies in 2018. Months later, he was in a Tokyo prison cell, having been brought down by what he’s described as a corporate coup.
Before and after that saga, Nissan and Renault didn’t take full advantage of the joint parts-purchasing and manufacturing arrangements that Ghosn said would be critical to their futures. The Nissan Leaf and Renault Zoe electric vehicles, for example, were based on different architectures and didn’t measure up well against Tesla Inc.’s Model 3, which arrived years later.
“There are doubts whether each can go it alone,” said Hiroki Ihara, an analyst at Tachibana Securities with the equivalent of a hold rating on Nissan shares. “But most likely, they will choose separate paths anyway.”
--With assistance from Reed Stevenson and Masatsugu Horie.
©2023 Bloomberg L.P.