Board already? Where we stand with the Alliance
Ahead of the speculated Renault board meeting on Dec-11th, we take a quick look at the potential scenarios unfolding in the Renault-Nissan saga. Short term, we fear that less rather than more will change in the Alliance. But we remain attracted to the fundamentals and would buy on weakness
3 potential scenarios are likely to be discussed at Renault’s board meeting on Friday It is increasingly clear that the Alliance structure needs to change before the French government’s double voting rights kick in on 1st April 2016. Any changes require board approval first, and we believe 3 scenarios will be discussed at Renault’s board meeting on Friday: 1) keeping the status quo but stakeholders limit power through binding agreements, 2) changes to the crossshareholding agreements, allowing Renault to free up EUR3.5-7.5bn of cash from its Nissan stake (equivalent to a EUR12-27 per share special dividend or even M&A?) and 3) a full blown financial merger.
Longer term only a full merger makes sense, we see 30-40% upside in that scenario After 15+ years of debate, the stars may finally be aligning for a full merger of Renault & Nissan. As the industrial partnership grows through the roll out of the CMF shared platform, the profitability of the companies will converge by 2017/18e, providing a more equal footing for a full combination. At current share prices, a nil-premium merger of Renault-Nissan would actually result in a 50:50 ownership split between Renault and Nissan in the combined NewCo. Even if more by luck than judgement, after 16 years, the stars are now finally starting to align. If not now, when?
Back to fundamentals…there is still value. While the potential outcomes are still widespread, on the balance of recent newsflow, its looking increasingly likely that less rather than more change will come out of the Renault board meeting on Friday. We would therefore exercise an element of caution this week, not all news would be good news. However, looking through this noise, our base case of EUR118 assumes no change to the structure of the Alliance. We continue to like the fundamental drivers of the Renault equity into 2016 (product cycle, mix tailwinds, sales to partners, EU exposure) and would buy on weakness