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Renault's weaker outlook raises the odds for a deal on Nissan stake


RENAULT SA's growing litany of woes could nudge the French carmaker to sell down its stake in Nissan Motor Co, a step that would help ease their strained relations.

The possibility of a shareholding deal with the Japanese company was driven home by analysts after a tumultuous week for Renault. A profit warning and subsequent drubbing of the share price on Friday followed on the heels of a top management shakeup, laying bare how ill-prepared the French carmaker may be for a downturn in the sector.

"Renault may need to consider selling assets including Nissan shares to defend its balance sheet," Jefferies analyst Philippe Houchois wrote in a note, pointing to a possible dividend cut and concerns about weak free cash flow.

A stake sale would go a long way in resolving the lopsided cross-shareholding structure that stands at the heart of a dispute between the partners. The tension has served to undermine a further deepening of their operational ties that could help to ease investment in electric and autonomous cars.

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The "only positive read" into Renault's profit warning would be that the financial problems trigger a sell-down of its Nissan holding, according to Evercore ISI analyst Arndt Ellinghorst. Yet this option "at a point of weakness would certainly not be very convincing".

Renault owns 43 per cent of Nissan with voting rights, while Nissan has a 15 per cent stake in Renault without them. The Japanese company has pushed for a lowering of Renault's hold, which the French firm has resisted.

Both companies' shares have weakened since former boss Carlos Ghosn's Nov 19 arrest, which deepened their mutual suspicion and nearly unravelled an alliance built on the promise of cost savings.

While the head of the French state's shareholding agency, Martin Vial, in August did not reject the idea of possible modifications to their ties, or even a potential cut to France's 15 per cent stake in Renault, there has been no public indication that progress is being made.

The French carmaker set a gloomy tone for the European automotive sector by slashing its outlook for revenue and profit, saying weakening economies are weighing on car sales and tougher rules on emissions have increased costs. It has also been hurt by Nissan's lower earnings.

The bad news came less than a week after the board dramatically removed CEO Thierry Bollore, replacing him temporarily with chief financial officer Clotilde Delbos. The interim leader said that the company "desperately needs" continuing cooperation within the alliance that also includes Mitsubishi Motors Corp in order to share costs.

Two days earlier, in a video address to staff, she called management changes atop both companies "a very good sign that we're going to continue to strengthen the synergies between Renault and Nissan".

Ghosn built the three-way alliance with the promise of savings including through the development of common platforms to build cars. At a time when manufacturers are racing to roll out electric and more autonomous cars, deeper cooperation between the companies would reduce costs. Tougher emissions rules in Europe have also raised investment requirements.

Yet getting their cooperation back on track could be a more distant prospect.

"We struggle to identify a quick fix in a depleted macro environment," MainFirst analyst Pierre-Yves Quemener wrote in a note. Renault needs to step up cost-cutting plans and stabilise governance, with an overhaul of the alliance coming in a longer time frame, he said. BLOOMBERG

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