‘Hell’ for Nissan boss as merger plan raises the stakes
Prospect of Renault-Fiat Chrysler deal creates new problems for Hiroto Saikawa
Just two months ago, in a bid to put the mayhem of Carlos Ghosn’s arrest behind them and convince the world that the future was bright, the leaders of Renault and Nissan linked hands on stage, beamed for the cameras and declared the “restart of the alliance”.
For Hiroto Saikawa, the Nissan chief executive whose leadership hung by a thread and whose future depends on navigating a global company through crisis, it was a crucial show of unity.
But for his counterpart in the handshake, the Renault chairman Jean-Dominique Senard, the word “restart” had a much greater meaning than a friendly sound bite. Unknown to Mr Saikawa and the Nissan leadership, Mr Senard was already in serious talks with the Fiat Chrysler Automobiles chairman, John Elkann, that would take the two European giants towards a full merger proposal and fundamentally rebalance the relationship between Renault and Nissan.
As a sign of how soured things have become within the alliance, advisers to FCA even refer to Renault as an active beneficiary of their abrupt intervention: the Italian company’s merger proposal, said one banker involved, “offers Renault a reset of its relationship with the Japanese”.
While that reset, after months of frustrated efforts to advance merger discussions between Nissan and Renault, may seem attractive to Mr Senard and straightforward to FCA, for Mr Saikawa it represents a colossal additional burden on management abilities that analysts judge to be already very stretched.
“It’s hell for Mr Saikawa whether he says yes or no [to the FCA-Renault deal],” said Koji Endo, head of equity research at SBI Securities. “It’s going to be a very tough negotiation for Mr Saikawa as he faces a Renault that will gain bigger bargaining powers by combining with FCA.”
Officially, Mr Saikawa had taken over as CEO when he was handpicked for the role in 2017. While Mr Ghosn was around, all-powerful and straddling the chairmanships of Nissan and Renault, say analysts, Mr Saikawa’s powers were constrained; with the former chairman now ousted, he has been forced not just to meet the full demands of the role but to reshape Nissan’s entire position in the alliance without the one person who once glued it together.
On one view, the mess has been galvanising. Against early predictions that he would not last more than a few months since the November arrest, Mr Saikawa is already preparing to face his third annual meeting of shareholders as CEO. The key to his survival, say people close to Nissan, was his hardline negotiating powers against what was seen as an aggressive push towards a merger by the French government.
But it was precisely Mr Saikawa’s unwavering tough stance, said people close to Renault, that eventually prompted Mr Senard to dramatically pivot his focus away from Nissan to FCA.
As Mr Saikawa prepares for his alliance board meeting with Mr Senard on Wednesday, he has signalled he would be open to talks to strengthen the partnership. The big question facing Mr Saikawa is whether he is prepared to take the group, which is now 43 per cent-owned by Renault, into a convoluted French-Italian-American-Japanese minefield where its voice will be less represented than in the current alliance.
“It was hard to understand Renault alone. Now talks will get even more complicated,” said one person close to Nissan’s board. “But it has always been Mr Saikawa who has been negotiating with Renault and he has the connections, so in that sense, his role will become even more critical.”
If Renault combines with FCA, analysts say Nissan’s position within the alliance will visibly weaken. In its existing alliance with the French carmaker, its leverage came from the bigger profits and sales it generated from two core markets that Renault was a minor participant in: the US and China. But if the merger takes place, Nissan’s sales of €94bn and profits of €3bn will be dwarfed by the merged entity’s sales of €170bn and profits of €8bn.
Because of those factors and the fact that FCA’s proposal has emerged from Nissan’s rebuff of Renault’s merger efforts, said CLSA analyst Christopher Richter, it could be argued that under Mr Saikawa, Nissan has been blind to the possibility that its stance could ultimately leave it in a weaker position.
“You could argue that Nissan has been looking for more independence but they lose that if their voice becomes secondary,” said Mr Richter.
Some Nissan executives remain sceptical about the latest deal since they were kept in the dark until a few days before FCA announced its merger proposal for Renault. People close to the talks explained that the decision was based on their belief that they should be able to clearly lay out the benefits of the FCA-Renault merger for Nissan before approaching the company.
Theoretically, those benefits in FCA’s proposal are compelling. Nissan, which now owns a non-voting 15 per cent stake in Renault, will be granted voting rights on a 7.5 per cent stake in the new merged entity, and a seat on the board. Crucially, the French state, which owns 15 per cent of Renault, will give up its double voting rights that Nissan believed gave it undue influence over alliance matters.
“Nissan is not being asked to do anything,” said one of the people close to the talks.
Investors also say Nissan may benefit from a partnership with FCA to revive its struggling business in the US. But for the Italian-American carmaker, an alliance with Nissan and its partner Mitsubishi Motors will also bring access to their electric vehicle technology and a stronger presence in China and other parts of Asia.
Longer term, people close to FCA say, the Italian group is open to a three-way merger that includes Nissan, an idea that will probably draw ire from the Japanese government and the carmaker.
Investors say, however, that if Mr Saikawa plays his cards right with FCA, he may get the concessions Nissan has long wanted to rebalance its relationship with Renault, while maintaining its independence within the expanded alliance in the short term.
The deal also gives Mr Saikawa breathing space since Renault will in effect shelve merger talks with Nissan while it focuses on its deal with FCA. In the meantime, the Japanese group can take time to assess how the integration goes between the two companies.
“He just bought himself five years,” said a London-based investor in Nissan. “What Nissan may have lost is a chance to be a dominant force in the merger, but they can preserve their independence.”
JPMorgan analyst Akira Kishimoto said Mr Saikawa would ultimately be judged by whether he can revive Nissan’s struggling US business and stem rapidly deteriorating profits with the time he has been granted.
“Results will be demanded from Mr Saikawa,” said Mr Kishimoto. “A turnround is not going to be easy and it’s going to take a considerable amount of time.”