over the future of Renault-Nissan alliance
The future of the Renault-Nissan alliance is under consideration after the arrest of its leader Carlos Ghosn in Japan recently. Some investors believe that the alliance could be broken, while others are still considering a long-term future for the alliance. France, which holds a 15% stake in Renault, closely followed the dismissal of Mr. Ghosn from the management of Nissan. It turned out to be a call from the government to review its position. Meanwhile, reports have called the action against Ghosn claiming he was unlikely to be responsible for writing payroll reports. This would have been done by the company and its auditors.
Ghosn Responsible for Renault’s Acquisition of Nissan
This must be frustrating, to say the least for Ghosn, who led Renault’s acquisition of Nissan in 1999 and created the alliance, which is currently the world’s largest automaker if you add Mitsubishi Motors, which was just recently acquired by them. The alliance sold 10.6 million vehicles last year. Ghosn also led the industry’s move towards electrification with the Nissan Leaf and Renault Zoe. Investors have been hoping for years that the alliance, which combines the 43% share of Renault in Nissan and the 15% of non-voting participation of the Japanese company in Renault, will move to a complete merger. When Ghosn’s four-year contract was renewed earlier this year, he was instructed to make the alliance with Nissan irreversible. According to Jefferies, the investment researcher, the removal of Ghosn would help the alliance, because so far, its operational performance had not been up to the synergies that had been claimed and the share price of Renault had recorded poor performance compared to that of its competitors. Nissan and Renault both need the alliance to continue in one form or another, he added. The Alliance cannot simply rely on personal legitimacy and must be based on clear mutual interests and the ability to generate and maintain cost synergies. With a number of potential positions to be filled, it is expected that the positions of the CEO, President will be separated in order to ensure higher accountability, added Houchois.
Conflicting View Points
While many feel the arrest of Nissan’s CEO will be good for the Renault-Nissan alliance and Nissan’s future in general, not everybody shared the same views. The Wall Street Journal thinks that the arrest of Ghosn augurs badly for the Renault-Nissan alliance. According to them, the arrest of Carlos Ghosn does not just kill one of the titans of the auto industry, it also eliminates any hope that the Renault-Nissan-Mitsubishi Alliance that he created, could be merged into a traditional car business. Wilmot of The Wall Street Journal also questioned the legitimacy of Japanese equities. A glaring question is why Mr. Ghosn, rather than Nissan, would be responsible for declaring his salary. The company and its auditors would normally be responsible for an incorrect ranking on the stock exchange, not the employee, added The Wall Street Journal, column writer Stephen Wilmot.
Renault’s Shares Take A Dive
Renault shares were down 5% to 56.35 euros recently, after losing nearly 10%only the day before. Investors have interpreted the controversy as meaning thatthe French government is now less likely to sell its mergers. French FinanceMinister Bruno Le Maire recently declared that the government would be soonseeking interim governance for Renault because Ghosn was no longer in aposition to lead the automaker. The French government did not request theofficial departure of Mr. Ghosn from the board for the simple reason that itdid not have any evidence to prove his malpractices, added Minister Le Maire.However, speculation still remains as to the French government’s stance. If asuitable replacement is found or if Ghosn is acquitted, it might decide not tosell its mergers. Everything depends on how things play out for him in thecoming weeks.