Renault gains on talks that may lead to paring of Nissan stake

Published Mon, Oct 10, 2022 · 06:01 PM

RENAULT’s stock surged after the carmaker confirmed talks that could lead to the French company cashing in some of its €6.1 billion (S$8.4 billion) shareholding in alliance partner Nissan Motor Co.

The stock rose as much as 6.8 per cent to €32.75, its highest intra-day level in more than seven months, after Renault said it is discussing several initiatives with Nissan. The talks include the Japanese manufacturer potentially investing in the new electric vehicle entity Renault is planning to set up.

People familiar with the matter said over the weekend that as part of the deliberations, Renault is open to reducing its stake in Nissan. The Japanese manufacturer has long bristled at the lopsided nature of their cross-shareholding structure, and several analysts have welcomed the prospect of Renault freeing up funds tied up in Nissan.

“We would see any rebalancing of Renault’s €6.1 billion stake in Nissan as a step toward better capital allocation at Renault,” Philippe Houchois, a Jefferies analyst with a “buy” rating on the French carmaker’s stock, wrote in a report Monday (Oct 10). “We find Renault to be both open-minded about changes in the alliance and more assertive in dealing with Nissan.”

Renault owns 43 per cent of Nissan, which in turn holds just 15 per cent of its alliance partner and lacks voting rights. Nissan is pressing Renault to reduce its stake to 15 per cent, according to the sources, who asked not to be named as the deliberations are private.

At current share prices, lowering its stake in Nissan to where the two would be on equal footing would yield €4 billion of cash before tax for Renault, Bloomberg Intelligence analyst Michael Dean said in a note.

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“Renault and Nissan’s mutual holdings would be the same, enabling the alliance to continue on more equitable terms, given a merger is no longer on the table,” he wrote.

Executives have discussed Renault’s carve-out plan and reshaping the pair’s two decade-old alliance since February, during meetings in both France and Japan. Negotiations are intensifying, with the French carmaker planning to announce details in early November.

Renault is holding a capital markets day on Nov 8 to update investors on its financial targets. Chief executive officer Luca de Meo also has pledged to give details on the planned carve-outs. While no decisions have been made yet, there is a chance that the talks would lead to an agreement before this date, the sources said. Given the carmakers’ close ties, Nissan has to sign off on the carve-out plans.

De Meo met over the weekend with Nissan CEO Makoto Uchida during a trip to attend the Formula 1 Japanese Grand Prix. Any paring of Renault’s shareholding will hinge on concessions from Nissan and probably include agreed-upon price levels or specific project milestones that will trigger share sales, the people said. The French state, which has a 15 per cent shareholding in Renault, also needs to approve any plan.

The negotiated sell-down of Renault’s Nissan stake “could take years, involve Nissan also selling down to keep its stake below the French state, and possibly involve other shareholders, given Nissan’s own limited resources,” wrote Houchois, the Jefferies analyst. BLOOMBERG

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