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French and Japanese carmakers will no longer be bound by need to ‘compromise’, says De Meo

Renault and Nissan have gained greater “freedom” to pursue their own ventures under a major reset of their strife-riddled 24-year alliance, the boss of the French carmaker has said.

The French and Japanese carmakers will no longer be bound by the need to “compromise”, or to work together in areas where they cannot both benefit, Luca de Meo told the Financial Times.

The pair nevertheless are set to announce several new joint manufacturing projects in India, Latin America and Europe on Monday as part of a historic shake-up of their partnership, after the boards of both groups approved a deal that equalises their cross-shareholdings in each other, a longstanding source of dispute.

The marriage between Renault and Nissan had been intended to generate vast savings but has, in reality, been marred by suspicion and infighting, which have broken through into public sight since the arrest in 2018 of former boss Carlos Ghosn.

De Meo likened the businesses to a couple in a rut after 25 years together, whose needs had diverged on some fronts. “The conversation becomes not as exciting as before, and then one of the two of you stands up from the sofa and says ‘I’m going out, I’m going to see friends’.”

The two companies were attempting to foster a new mindset and remove layers of constraints to prevent strains in their partnership turning into a full-blown “divorce”, he added, while retaining some of the benefits of the alliance, like their shared clout in areas such purchasing from suppliers.

“Renault regains its strategic agility and the freedom to do what is good for us, which is not always what is good for the alliance,” De Meo said.

The reset comes as Renault is trying to speed up its development of electric cars in its European heartland, while Nissan’s next steps may be more focused on improving earnings in the markets where it is more focused, like the US or China.

As part of the shake-up, Renault will over time trim its 43 per cent stake in Nissan to 15 per cent, while Nissan will gain voting rights for its own 15 per cent holding in Renault.

But the deal also entails ripping up a shareholder agreement that effectively stifled much of Renault’s voting rights in Nissan and had created a form of “operational deadlock”, De Meo said.

Nissan has also agreed to invest in “Ampere”, a new Renault division that will house its electric vehicle and software technology, which the French company is spinning out as part of a major corporate overhaul.

Until recently, talks between Renault and Nissan had been complicated and occasionally heated, people familiar with the discussions have said, following months of negotiations.

The new joint ventures between Renault and Nissan were agreed on as projects that would benefit both and could produce “billions” in value “if it works out perfectly, which it will not”, De Meo said. He added that it was more likely to produce “hundreds of millions” in time.

Philippe Houchois, a motor industry analyst at Jefferies, said the alliance reset potentially gave both companies flexibility to pursue other partnerships.

Renault already has several collaborations with China’s Geely, which will invest in Renault’s engine business, codenamed “Horse”. The pair also work together in South Korea, and have a project between Renault’s Alpine brand and Geely’s Lotus.

Houchois added that the joint projects were “a side issue”. A much bigger question was “how Renault manages Horse and Ampere, and how does Nissan address its weakness in China and fix the US”.

The Italian government may be looking at different numbers, but the proposal deserves careful consideration

Giorgia Meloni’s government faces a test of its market credentials. Private-equity giant KKR has swooped on debt-laden Telecom Italia with a non-binding offer — reported at €20bn — for its fixed-line network. That will raise a variety of political concerns. But the rumoured price looks plausible, and the need for investment puts Telecom Italia under some pressure to do a deal. KKR’s offer should not be dismissed out of hand.

Telecom Italia has had a complex couple of decades. As a favourite takeover target for cash-strapped Italian entrepreneurs, it has been loaded up with acquisition debt, stifling its ability to invest. Today, it has €25.5bn of net debt — a chunky 4.4 times 2022 expected earnings before interest, tax, depreciation and amortisation. Spanish peer Telefónica is on 2.5 times.

In the short term, the group is protected by the fact that 65 per cent of its debt is fixed-rate with a five-year average maturity. But applying its marginal cost of debt to the whole of the €33bn gross debt mountain would add about €1bn to interest costs. Telecom Italia needs to sell a major asset and the network has already been prepared for a carve-out by chief executive Pietro Labriola.

KKR’s mooted €20bn offer for the whole of NetCo — at 10 times 2021 ebitda — is no knockout. Majority shareholder Vivendi — which has 24 per cent of Telecom Italia — has reportedly sought a much higher price. But TIM’s network is mostly copper, and requires some €7bn of investment to upgrade to fibre.

KKR’s money would allow Telecom Italia to cut its debt pile significantly. KKR’s 37.5 per cent stake in NetCo subsidiary FiberCop, the last mile of the network — might be valued at about €4bn. The remaining €16bn of proceeds (if TIM sold the whole of the network) would leave the rest of Telecom Italia with €9.5bn of net debt, or €4.5bn before leases.

The Italian government — which owns 10 per cent of Telecom Italia through Cassa Depositi e Prestiti, and can block a foreign takeover with its “golden share” — may be looking at different numbers. TIM has 40,000 employees — and it is not clear how many would go with a private-equity run NetCo. Still, Telecom Italia needs fixing. KKR’s offer deserves careful consideration.

Consolidation in prospect as US-listed Newmont seeks to bring Australian group back into fold

Two of the world’s largest gold miners are in talks to create a global powerhouse for producing the precious metal in the biggest takeover offer announced this year.

US-listed Newmont, already the world’s largest gold miner by output, has launched an all-share bid for its Australian rival Newcrest that values the smaller company at almost A$24bn ($17bn).

The move could kick-start a bidding war for Newcrest, Australia’s largest gold mining player. Analysts say rivals including Canada’s Barrick Gold and Agnico Eagle are also looking to consolidate the market.

Newcrest shares gained 10 per cent to A$24.74 on the news, reaching their highest level since May.

Newmont’s A$24bn offer for Newcrest would be the largest M&A deal announced so far this year, according to data from Dealogic, easily outstripping the $7.5bn acquisition of water treatment company Evoqua by technology group Xylem announced last month.

Newmont’s offer implies a 21 per cent premium to Newcrest’s last closing share price.

Tom Palmer, the Australian chief executive of Denver-based Newmont, said the deal was conditional on approval from Newcrest’s board and regulators.

“We believe a combination of Newmont and Newcrest presents a powerful value proposition to our respective shareholders, workforce and the communities in which we operate,” he said.

The combination would reunite the two companies after almost a quarter of a century. Melbourne-based Newcrest was established in the 1960s as Newmont’s Australia arm and was spun out in 1990 after it merged with BHP’s historic gold assets.

The combination of the historically linked companies would put four of Australia’s five largest gold mines under the control of one company and require Australian government approval.

News of the talks was first reported by the Australian Financial Review.

A combination of rising costs in Australia’s mining sector, production issues for gold and volatility in its price as interest rates have risen sharply has driven more companies to consider deals to boost their scale.

Assets in stable countries such as Australia and Canada have come into focus. OZ Minerals, the south Australian nickel, copper and gold miner, is close to being acquired by BHP for $6.4bn, while Canada’s Yamana Gold is being broken up after Agnico Eagle and Pan American Silver paid $4.8bn to acquire the company.

Newcrest is a larger target for the gold sector’s biggest companies. It has mines in Australia, Canada and Papua New Guinea, and has been on the radar of both Newmont and Barrick in recent years. It has become a target again after its stock nearly halved in value between April and September last year. Its long-serving chief executive Sandeep Biswas stepped down in December and the company has yet to name a permanent replacement.

Newcrest said that it had already rejected one bid as being too low, but it did not rule out engaging with its larger rival, which submitted a higher indicative bid on Sunday.

The new proposal, which would offer 0.38 Newmont shares for every Newcrest share, would also include a plan to list Newmont on the Australian Stock Exchange. Newmont shareholders would control 70 per cent of the combined company to Newcrest’s 30 per cent.

Simon Mawhinney, chief investment officer of Newcrest’s largest shareholder Allan Gray, said he would not support a takeover by Newmont based on the terms proposed.

“Newcrest is very cheap. There is dilution risk,” he said. “The merger ratio is too cute by half,” he said, noting that the Australian company was well funded and that its long-life gold reserves should be highly valuable.

Mitch Ryan, an analyst with Jefferies, said the approach may shake out other bidders, with Barrick linked with a takeover in 2018. “While no formal indication has been given, further interest from other suitors is possible.” he said.

Newcrest, which is being advised by JPMorgan and Gresham Advisory Partners, said it would consider the new bid. Newmont is being advised by Bank of America, Centerview Partners and Lazard.