What’s up with Fiat and Renault?

Big automakers keep gravitating towards each other. Fiat Chrysler Automobiles NV proposed a merger with Renault SA. Will the deal happen? What may it bring?

Why is it important?

In general

The world is changing and the automobile industry is the one where everyone can spot the change with the naked eye. The trend is obviously to shift towards electric vehicles and self-driving cars. To be able to adapt, companies need more resources, hence the desire to consolidate. In addition, together it’s easier to face the challenge of carsharing.

For investors

So far, we know that Fiat suggested 50-50 ownership through a Dutch holding company. Renault shareholders, the French government included, would get an implied premium of about 10%.

Both French and Italian authorities are positive about the potential merger. Fiat and Renault will be able to make their brands complement each other in a way that together they will offer products for all price segments. In addition, they will provide each other with access to new markets. All in all, according to the firms, joint annual synergies should exceed 5 billion euros, while the combined entity will become the third biggest carmaker in the world.

There are also other companies that will be affected by deal-to-probably-happen. Nissan and Mitsubishi have strong ties to Renault. Fiat claims that they will also benefit from the change, although Japanese firms will become more dependent on the bigger entity.

To make a conclusion, it’s clear that although nothing is decided yet, the European companies seem strongly interested in the move. Notice that history knows examples of failed mergers (remember DaimlerChrysler?). Fiat and Renault have more in common than Daimler and Chrysler, but it’s still hard to make a precise forecast on whether the firms will stick together well in the future. 

For traders

The stocks of both Fiat and Renault jumped by double digits on the news. The stock of Renault has been in a downtrend since March 2018. In 2019, the price consolidated within a wedge but then broke down. The merger-related news led to the formation of a bullish gap. The rise above 59.50 will improve the technical picture, but the downtrend will end only if the stock rises above 64.50.

The weekly chart of Renault
Renault, weekly chart

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