French Pledge Seen Averting Crisis at Renault-Nissan for Now

Updated on
  • Analysts say agreement is good for share price stability
  • Nissan won't have to spend money to increase Renault holding

The French government’s pledge not to interfere in Nissan Motor Co.’s governance has averted a crisis for the alliance with Renault SA, even as it fails to solve the underlying imbalance in the partnership, according to Tokai Tokyo Research Center and Advanced Research Japan.

“The three parties have put out fire at least for now, which is good for the stability of the share price,” said Seiji Sugiura, a Tokyo-based analyst at Tokai who has a neutral rating on Nissan’s stock. “Fundamentally this remains a lopsided alliance.”

Renault’s board, which includes two French government representatives, agreed unanimously on Friday that the state will maintain a right to double the voting power for its stake as of April 2016, while capping those rights to 17.9 percent except in certain circumstances. While Nissan didn’t succeed in activating voting rights for its 15 percent holding in Renault, the two manufacturers will draw up a contract enforcing non-interference in the Japanese company’s decisions.

The deal is an effort to stabilize the carmakers’ 16-year alliance after France increased its stake in Renault to 19.74 percent without informing Chief Executive Officer Carlos Ghosn in advance. The move was meant to boost France’s power at one of the country’s key manufacturers by pushing through a loyalty-shareholder program, which doubled the voting rights of investors who’ve held stock for more than two years.

The move triggered discussions to rebalance the alliance’s structure, which was created when Nissan was on the verge of bankruptcy. The Japanese carmaker has since become more profitable than Renault, contributing 1.56 billion euros ($1.7 billion) to its partner’s bottom line last year. Nissan also has a bigger market value than that of Renault, raising questions about the viability of the tie-up’s structure even before France’s move.

Friday’s agreement means Nissan wouldn’t have to pay for an increase in the stake in Renault to deter France’s influence, according to Tachibana Securities Co.

“I had a good impression from the announcement," said Tsunenori Ohmaki, an analyst at Tachibana. “Nissan now can spend the money for other purposes to develop business.”

Nissan’s shares were little changed in Tokyo, while the Topix Index declined 1.4 percent.

Koji Endo, an analyst at Advanced Research Japan who’s covered the sector for more than 30 years, said tensions may still flare up in the future as long as France continues to have the dominant say in the alliance and Nissan remains under-represented.

“This is only the first round of the battle," said Endo. “For the time being everybody will be comfortable, but there will be second round down the road.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE