RNO / Fiat ; Proposed Merger - Makor first View - Detailed in your email box.
MAKOR CONCLUSION
The €5bn annual synergies are driving the rational behind the deal but it will be a very long journey. It is quite a lengthy and complex deal that will need the support of a few different parties : the French government, the Italian politicians, the Nissan Board of Directors, the minority shareholders and the Antitrust Regulator to name a few.
We do not think the FCA shareholders vote to be difficult in any ways given the 42% voting rights held by Exor (Fiat and Exor have been exploring deals for Fiat for the last 2 years). This of course provided that no one steps in to make an hostile offer on FCA that would make the transaction a much more complicated scenario, as we doubt that Exor would accept a deal in which they would lose control of the merged entity. Nevertheless, at this stage we think its too early to exclude any scenarios.
Renault shareholder approval should be achievable as well given the double voting rights associated with the shareholding of the French States and Employees. The French State holds 15.01% stake giving it 28.6% of the voting rights.
We think that a challenge to the deal is as well difficult to imagine, although some may argue that the terms offered by FCA could be low given the discount of RNO shares to their NAV (deep discount given by the market reflects the negative impact on possible RNO-Nissan alliance unwind).
We question the timing of the transaction at a moment where Renault have to deal with a new leadership (following C. Ghosn arrest and judicial procedure in Japan), ongoing negotiation with Nissan regarding the future of their Alliance and potential merger.
So far Nissan has rebuffed Renault on any plan for more integration. We remind as well that Ghosn has looked at a deal with Fiat in the past.
We think that investors will pay close attention to what will be the response of the Nissan board to the proposed transaction. The proposed deal clearly shifts the balance of power toward Europe which is likely to antagonise Nissan Japanese Board members, but their stake in Renault does not provide them any voting rights, limiting the influence they can exercise on the final decision.
We think that the move puts Nissan board members in an inconvenient situation if they were to come out against the deal, given the synergies expected to benefit Nissan from the RNO/FCA (€1bn for the Alliance) and the lacklustre performance and outlook at Nissan. Furthermore, FCA said proposal that Nissan should get 7.5% voting rights in the merged company as opposed to their current 15% non-voting stake.
Surprisingly the Italian government did not come out negatively in support of the proposed transaction, while Renault Board commented that it would study the proposal with interest. Similarly the French government has indicated that it would support the deal, provided the rights conditions. So far the French State hasn’t officially approved and the expected dilutition of its stake in the merged entity, as well at the loss of its double voting right could be a sticking point in the negotiations. Furthermore, the proposed cancellation of double voting rights might be in breach of the Florange law in France. We think that the French government could demand better terms in respect to voting rights and governance, but we need to further analyse the proposed shareholding and governance structure.
In addition the French State stake in Peugeot could become an issue in terms of antitrust clearance as some regulators might decide to classify Peugeot and Renault as SOEs, which could be an issue and make antitrust approvals more difficult, and result in the French State divesting its stake in Peugeot in order to clear RNO/FCA. Similarly RNO Chinese joint-Ventures could come under scrutiny and might have to be divested.
We think the value of the combination and projected synergies are not yet priced in at current Share prices.
The current Net Spread at 8.7% reflects investors cautious stance in the absence of a firm offer. We think the current level warrants setting up a small position, until more clarity is given once the firm proposal are on the table.
FCA’s CEO was quoted in a letter to employees saying it could take more than a year for FCA and Renault to finalise the proposed merger. Therefore, we would assume a mid-October 2020 closing to account for the lengthy regulatory review process and the antitrust reviews that will be required.
Deutsche Bank braced for loss of investment bank chief
Garth Ritchie said to be concerned by Christian Sewing’s cuts and lack of shareholder support
Deutsche Bank’s top investment banker could quit the lender because of disagreements over cuts and a lack of support from shareholders, say senior figures at the bank.
Garth Ritchie is worried by the radical cuts to his business proposed by group chief executive Christian Sewing, and is concerned that some of the plans could backfire, the people said.
He has also been weakened by a large protest vote against him at last week’s annual meeting. He was only supported by 61 per cent of the shareholders and a Qatari investment vehicle — which is among the bank’s largest shareholders — voted against him.
Two people who attended the bank’s internal drinks reception after the meeting said that Mr Ritchie discussed with Mr Sewing and chairman Paul Achleitner whether the vote was as damaging for him as a similarly poor 2015 vote had been for then-CEO Anshu Jain. Mr Jain resigned shortly afterwards.
They concluded that this year’s outcome was less harmful given that investor voting behaviour had become more aggressive in recent years.
Mr Ritchie was not the only executive facing questions after the annual meeting. Regulatory chief Sylvie Matherat suffered a similar number of votes against her and is expected to depart sooner rather than later, according to senior figures at the bank. Some of her responsibilities are already being merged with units overseen by other managers.
Mr Sewing in a speech later at the drinks reception stressed that individual results did not matter. “We are all in this together,” Mr Sewing said according to one participant.
Nevertheless one of the people close to the supervisory board told the Financial Times that it would be “negligent” not to prepare for a potential resignation of the investment banking boss.
A second senior insider said: “Garth is not going to be forced out but he may decide he can’t accept the decisions on aggressive cutbacks that he is going to have to implement.”
Senior investment bankers are concerned that closing large swaths of the US equities and rates businesses would trigger an immediate decline in revenue while costs would remain high.
But one senior manager said that such radical action was necessary, even if it meant things getting worse before they get better. “It’s a classic J curve but we have no choice. We have to be radical,” he said.
“The plan needs to come in weeks and not months now that the direction of travel is clear,” said one person close to the supervisory board.
On Sunday evening, Mr Ritchie told the Financial Times: “I am completely committed to my task as president and as the head of the corporate and investment bank of Deutsche Bank and I am completely aligned with our CEO Christian Sewing on our plans.”
The 51-year-old South African, who has worked at Deutsche for more than two decades, toyed with leaving in the autumn of 2017 as well as in the spring of 2018, but on both occasions was convinced by Mr Achleitner to stay.
In late 2017, he was promised an extra €3m in fixed pay per year until 2020 for overseeing the lender’s Brexit preparations.
Should he leave, fixed-income boss Yanni Pipilis, US head Mark Fedorcik and division president Ram Nayak are seen as the most likely internal successors. Stefan Hoops, a confidant of Mr Sewing who heads the global transaction bank, may be another potential successor.
Italian government might ask for symmetry with Paris in FCA-Renault merger - League lawmaker
MILAN (Reuters) - Italian government will defend national interest in the FCA- Renault merger and might ask for a stake in the new global automaker to match French state holdings, a prominent League ruling party lawmaker said on Monday.
Fiat Chrysler has made a “transformative merger” proposal to Renault, the Italian carmaker said on Monday, in a deal which would create a world leader and help address some of the weaknesses in both automakers.
Claudio Borghi told La7 TV the presence of the French state in Renault’s capital was an “anomaly”.
“We might ask for symmetry” in governments’ stakes, he said.