By Nick Kostov 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 5, 2019).

PARIS -- The board of Renault SA said it needs more time to weigh a merger proposal from Fiat Chrysler Automobiles NV that would create the world's third-largest auto maker by production, with a market value of about $40 billion.

The French auto maker's board said Tuesday it "has decided to continue to study with interest the opportunity of such a combination and to extend the discussions on this subject," adding that it would meet again Wednesday evening.

Renault directors haven't seen a final proposal from Fiat Chrysler, according to people familiar with the board meeting. Contours of a merger were still being negotiated as the board met.

Lawyers for the two companies as well as the French state -- which holds a 15% stake in Renault -- were in the same building finalizing deal terms ahead of Wednesday's board meeting. People familiar with the negotiations said the board would be asked to vote on a final proposal at that time.

"We'll spend the night there if we have to," one of the people said.

One French official said there would be "no rushing" of the negotiations. "There's no agreement on anything until there's agreement on everything," the official said.

Fiat Chrysler's proposal aims to give both companies more scale to cope with slowing sales and the rising cost of developing electric vehicles and self-driving cars. If Renault and Fiat Chrysler complete the merger, the combined company would produce almost nine million passenger cars and light trucks a year, placing it just behind Volkswagen AG and Toyota Motor Co. and ahead of General Motors Co.

The negotiations represent a test of the European auto industry's ability to overcome national economic rivalries and establish a regional champion, akin to Airbus SE in aviation.

Fiat Chrysler sent Renault directors a merger proposal on May 26 that called for the combined business to be 50% owned by the Italian-American company's shareholders and 50% by Renault shareholders.

In recent days, the companies have been in discussions over such matters as how to protect jobs in France and the length of management mandates, people familiar with the matter said. Also at issue, they said, is whether the French state would have a say in appointing future CEOs and whether it would be guaranteed board representation.

The different sides are also discussing standstill clauses to ensure that the two companies stay equal after the deal and that it doesn't become a takeover of one auto maker by the other, one of the people said.

Complicating any deal is a 20-year-old partnership between Renault and Nissan Motor Co. in which they share technology and vehicle parts. Renault owns 43.4% of Nissan, while Nissan owns 15% of Renault. Though Nissan is represented on Renault's board, the Japanese company hasn't been involved in the merger talks, people familiar with the discussions have said.

On Monday, French activist fund CIAM wrote to Renault directors to challenge the conditions of the merger offer, saying the combination "would benefit Fiat Chrysler significantly more than Renault, both from an industrial and a financial point of view."

The fund said valuing the two companies at their stock market price -- which led Fiat Chrysler to offer its shareholders a dividend of EUR2.5 billion ($2.81 billion) -- "appears to us to be misleading and results in significantly undervaluing Renault."

CIAM estimates the merger proposal gives Renault's operations a valuation of a negative EUR6 billion, excluding the company's stakes in Nissan and Daimler AG as well as its auto-finance operations.

On Tuesday, financial advisers from HSBC hired by Renault's board presented directors with a financial analysis of the Fiat Chrysler proposal, according to one of the people familiar with the board meeting.

Directors also undertook other matters, including reviewing the final findings of an audit into Carlos Ghosn's spending at the company's Dutch joint-venture with Nissan. The former Renault chairman is facing criminal charges in Japan, including allegations that he abused his Nissan position for personal gain. Mr. Ghosn, who was first arrested in November and is now free on bail, has said he is innocent of all the allegations against him.

Write to Nick Kostov at Nick.Kostov@wsj.com

 

(END) Dow Jones Newswires

June 05, 2019 02:47 ET (06:47 GMT)

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