Milan: Fiat Chrysler Automobiles NV is poised to announce an operational tie-up with Renault SA as soon as today that could lead to a full merger of the French and Italian-American companies, creating the world’s third-biggest automaker.

The deal could involve an initial exchange of equity, the people said, asking not to be identified because the discussions aren’t public. Renault’s existing alliance partners, Nissan Motor Co. and Mitsubishi Motors Corp., aren’t involved, although they would be invited at a later time to join forces with the merged Fiat-Renault, the people said.

The talks with Fiat have moved ahead without Nissan, Renault’s 20-year partner, illustrating the intense pressure facing automakers to combine efforts and investments. A French drive to forge closer ties with Nissan, which has resisted proposals to join with Renault in a holding-company structure, has been put on hold, the people said.

Talks between Fiat and Renault have accelerated in recent days as negotiators found a way to structure a deal, the people said. Renault’s board is scheduled to meet today morning. Representatives from the two companies declined to comment.

Fiat has conditioned the merger talks on Renault agreeing not to pursue a transaction with Nissan in the short term, the people said. Exor NV, the investment vehicle of Fiat’s founding Agnelli family, owns 29% of Fiat and would become the largest investor in the combined company.

Should a deal proceed, Fiat Chairman John Elkann, who leads the Agnelli family, would become chairman of the merged company, while Renault Chairman Jean-Dominique Senard would be chief executive officer, the people said.

Pressure on Automakers

With sales falling in the world’s biggest car markets, manufacturers are being pushed by regulators to electrify and reduce fleet emissions. They’ve also been forced to spend heavily on self-driving technology or risk getting left behind by new, deep-pocketed competitors like Alphabet Inc.’s Waymo.

A Fiat-Renault agreement would hold the potential for extensive cost savings in Europe -- both through sharing investments and reducing costs in the struggling market. Almost one-third of Fiat’s global work force of 198,500 was located in the region at the end of last year, even though the company makes almost all of its profit in North America. Renault, which is 15% owned by the French government, counts on Europe for almost half its sales.

Together, the two companies made about 8.7 million cars last year, which would vault the pair past South Korea’s Hyundai Motor Co. and Detroit’s General Motors Co. The world’s two biggest automakers, Volkswagen AG and Toyota Motor Corp., each topped 10 million vehicles last year. Renault, with alliance partners Nissan and Mitsubishi, also reached this level.

Fiat would give Renault access to the North American market, while gaining clout in Russia, the French carmaker’s second-biggest market with its Avtovaz unit. Overall, Renault deliveries fell 5.6% to 908,348 vehicles in the first quarter, while Fiat Chrysler sales were down 14% to 1.04 million cars and light trucks.

Fiat also held initial talks with Peugeot owner PSA Group as it evaluates potential partners, the people said. PSA remains open to “opportunities that would create value on a long-term basis," it said in an email.

French Meetings

Falling sales in the three major regions -- China, the US and Europe -- have brought fresh urgency to the cause of consolidation championed for years by the late former Fiat chief, Sergio Marchionne, and deposed Renault-Nissan alliance Chairman Carlos Ghosn.

Fiat has been seeking a partner in recent months, with talks focused on Renault and PSA. Elkann and CEO Mike Manley have made several trips to Paris since the beginning of the year for business meetings as part of their search for ways to make the carmaker stronger, the people said.

Renault has been trying to firm up its two-decade alliance with Nissan, which was shaken by the arrest of Ghosn last November over alleged financial misdeeds. His departure surfaced tensions between the partners, with Nissan executives resisting new proposals by Renault to cement ties through the creation of a holding-company structure.

Renault owns 43% of Nissan -- the bigger partner -- which in turn owns 15% of Renault, with no voting rights. A 2015 agreement granted Nissan guarantees preventing Renault from interfering in its governance, a move the Japanese carmaker considered necessary because the French government is Renault’s most powerful shareholder.

The French government has been kept abreast of talks between Renault and Fiat Chrysler and will consider the impact of any proposed tie-up in terms of jobs, industrial footprint and valuation, according to a person familiar with the matter. French officials would prefer a deal that strengthens the existing Renault alliance by bringing in Fiat, and at worst a deal with the Italian-American carmaker would have to be alliance-neutral, the person said.

Recent Truce

Relations between Nissan and Renault had steadied in recent weeks, with the appointment of Renault CEO Thierry Bollore to the board of its Japanese partner, and the reappointment of Nissan CEO Hiroto Saikawa, who opposes a merger with Renault. Still, a Renault deal with Fiat would put pressure on Nissan, while potentially making the resulting entity more formidable.

Together, Renault, Nissan and Mitsubishi sold 10.76 million passenger cars and light trucks last year. Joining Fiat with the French and Japanese partners would bring the total to more 15 million vehicles a year, with a strong presence in all major markets and premium brands like Jeep, Maserati, Alfa Romeo and Infiniti under a common umbrella.

Renault’s partnership with Nissan was thrust into the spotlight in November with the arrest of Ghosn, the chairman and architect of the global car-making alliance. In the aftermath, Nissan CEO Saikawa has sought to pull back from Europe and North America, where he contends the Japanese company has sacrificed profit for volume.

‘Junkie’ Confessions

Fiat Chrysler has been looking for a tie-up since Marchionne created the Italian-American carmaker in 2014. A year later, Marchionne became vocal on the auto industry’s need for consolidation in an analyst presentation called “Confessions of a Capital Junkie."

Marchionne argued then that carmakers waste 2 billion euros ($2.24 billion) a week by duplicating investments they could share. At the time, Renault-Nissan was considered the second-best fit for Fiat after General Motors Co., according to people familiar with the plan. GM rebuffed Fiat’s approaches.

Other carmakers are also looking to each other for savings. BMW AG and Daimler AG have pushed aside rivalries to join forces in sharing services and autonomous cars. VW has been in talks with Ford Motor Co. to team up on e-cars and autonomous vehicles.

Fiat has history with French President Emmanuel Macron, whose support would be needed along with Italian officials for a deal that could involve major job cuts in France and Italy. In 2013 Macron, then a top adviser to President Francois Hollande, had preliminary talks with Fiat about a merger with troubled Peugeot.

Bloomberg reported in April that Fiat and PSA were discussing a 'super-platform' -- the underpinning of a car model -- as part of a partnership to share investments. While PSA remains open to deals, based on 2018’s financial results, “there is no hurry to finalize any partnership," according to an emailed statement.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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