PARIS -- Fiat Chrysler Automobiles has made a "transformative merger" proposal to French peer Renault, FCA said on Monday.
The FCA proposal was finalized in overnight talks with Renault. It was being discussed at a meeting of Renault's board on Monday.
The deal would create an automaker with a strong presence across key regions, automotive markets and technologies, generating 5 billion euros ($5.6 billion) in annual savings, FCA said in a statement.
The "broad and complementary brand portfolio would provide full market coverage, from luxury to mainstream," FCA said.
The merger would bring brands such as Jeep, Chrysler, Fiat, Maserati and Alfa Romeo under a common umbrella.
"The case for combination is also strengthened by the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry," FCA said.
The deal could take more than a year to finalize, FCA CEO Mike Manley told employees on Monday in a letter.
The transaction will be structured as a 50-50 ownership through a Dutch holding company, FCA said, adding that it would give Renault investors an implied premium of about 10 percent. After payment of a 2.5 billion-euro special dividend to FCA shareholders, each group would receive 50 percent of the combined entity in new stock.
Exor, Fiat's founding Agnelli family holding, is set to become the single largest shareholder in the combined entity. The new company would be chaired by John Elkann, head of the Agnelli family that controls 29 percent of FCA, sources familiar with the deal talks told Reuters. Renault Chairman Jean-Dominique Senard would likely become CEO, one said.
Renault and FCA had a combined market value of 32.6 billion euros as of Friday. Milan-listed Fiat Chrysler shares jumped 19 percent in early trade, while Renault stock leapt 17 percent.
Renault and FCA built about 8.7 million cars last year, which would vault the pair past Hyundai Motor Group and General Motors. That’s still behind the world’s two biggest automakers, Volkswagen Group and Toyota, which both topped 10 million vehicles last year. Renault’s existing alliance, including numbers from partners Nissan and Mitsubishi, also reached this milestone.
The merger would give Renault access to the North American market, while FCA would gain clout in Russia, the French carmaker’s second-biggest market with its AvtoVAZ unit, which builds Ladas.
The merger plan faces political and workforce hurdles in Italy, and potentially also in France. Most of FCA's European plants are running below 50 percent capacity. FCA said the planned cost savings would not depend on factory closures.
Pressure for consolidation among automakers has grown with the challenges posed by electrification, tightening emissions regulations and expensive new technologies being developed for connected and autonomous vehicles.
“Fiat and Renault are looking for surer footing by gaining scale, and that’s not a bad idea for mass-market carmakers,” Bankhaus Metzler analyst Juergen Pieper said. “The execution of the deal is a significant hurdle. But on paper, this proposal looks good.”
If successful, the tie-up could also have profound repercussions for Renault's 20-year-old alliance with Nissan, already weakened by the crisis surrounding the arrest and ouster of former Chairman Carlos Ghosn late last year.
FCA and Renault have moved ahead without Nissan, the French automaker’s 20-year partner, which has resisted proposals by Renault to merge in a holding-company structure.
Both FCA and Renault went through dramatic changes at the top last year after former FCA chief, Sergio Marchionne, died and Ghosn was arrested in Tokyo on charges of financial crimes.
FCA-Renault, like almost every possible automotive pairing, had been studied intermittently for years by dealmakers. But the fractious relations between Ghosn and Marchionne made constructive merger talks impossible until after Marchionne's sudden death last July, banking sources said.
The French government, Renault's biggest shareholder with a 15 percent stake, supports the merger in principle but will need to see more details, its main spokeswoman said on Monday.
France will be "particularly vigilant regarding employment and industrial footprint," another Paris official said, adding that any deal must safeguard Renault's alliance with Nissan.
Nissan, which is 43.4 percent-owned by Renault, would be invited to nominate a director to the 11-member board of the new combined company, under the plan presented on Monday.
As alliance partners, Nissan and its affiliate Mitsubishi would benefit from an estimated 1 billion euros in annual savings from the merger, FCA said.
The Italian government may also seek a stake in the combined group to balance France's holding, a lawmaker from the ruling League party said on Monday.
Anticipating such sensitivities, FCA stressed "new opportunities for employees of both companies" under the merger.
Bloomberg contributed to this report
