Milan/Paris: Fiat Chrysler pitched a finely balanced merger of equals to Renault on Monday to tackle the costs of far-reaching technological and regulatory changes by creating the world’s third-biggest automaker.

If it goes ahead, the $35 billion-plus tie-up would alter the landscape for rivals including General Motors and Peugeot maker PSA Group, which recently held inconclusive talks with Fiat Chrysler (FCA), and could spur more deals.

Renault said it was studying the proposal from Italian-American FCA with interest, and considered it friendly.

Shares in both companies jumped more than 10% as investors welcomed the prospect of an enlarged business capable of producing more than 8.7 million vehicles a year and aiming for €5 billion ($5.6 billion) in annual savings. It would rank third in the global auto industry behind Japan’s Toyota and Germany’s Volkswagen.

But analysts also warned of big complications, including Renault’s existing alliance with Nissan, the French state’s role as Renault’s largest shareholder and potential opposition from politicians and workers to any cutbacks.

“The market will be careful with these synergy numbers as much has been promised before and there isn’t a single merger of equals that has ever succeeded in autos," Evercore ISI analyst Arndt Ellinghorst said.

With these sensitivities in mind, FCA proposed an all-share merger under a listed Dutch holding company. After a €2.5 billion dividend for existing FCA shareholders—giving a big upfront boost to the Agnelli family that controls 29% of FCA—investors in each firm would hold half of the new entity.

The merged group would be chaired by Agnelli family scion John Elkann, people familiar with the talks told Reuters, while Renault chairman Jean-Dominique Senard would likely become CEO.

Italian deputy Prime Minister Matteo Salvini said the proposed merger could be good news for Italy if it helped FCA to grow, but it was crucial to preserve jobs.

He did not comment on the French government’s 15% stake in Renault, but an influential lawmaker from the ruling League party said Rome may seek a stake in the combined group to balance France’s holding.

A deal 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. The Japanese carmaker has yet to comment on FCA’s proposal.

In a letter to employees seen by Reuters, FCA chief executive Mike Manley cautioned a merger with Renault could take more than a year to finalize.

A deal could help both companies address some of the shortcomings that have led their market valuations to lag major rivals, as well as the shift to electric and self-driving technologies amid tightening emissions regulations.

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