Fiat Chrysler pitched a finely balanced merger of equals to Renault on Monday in a move to cope with the costs of far-reaching technological and regulatory changes by creating the world's third-biggest carmaker. As part of the proposal, each of the companies would own 50% shares of the combined business.
It added that the merger would not result in any plant closures and create annual synergies worth 5 billion euros (R80.7bn) on top of those from the existing Renault-Nissan-Mitsubishi alliance.
Although Renault owns a 43 percent stake in Nissan, the Japanese automaker is the bigger partner by sales and owns 15 percent of Renault, with no voting rights.
The merger is still subject to negotiation and to final review and approval by the FCA and Renault Boards.
Shares in both companies jumped more than 10 percent as investors welcomed the prospect of an enlarged business capable of producing more than 8.7 million vehicles a year and aiming for 5 billion euros (4.4 billion pounds) in annual savings.
Renault said in a short statement that its board of directors would consider the "friendly proposal". The alliance is also held together by a web of joint purchasing and car-platform agreements, with both companies sharing their production lines in a number of countries.
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Pressure for consolidation among carmakers has grown with the challenges posed by electrification, tightening emissions regulations and expensive new technologies being developed for connected and autonomous vehicles. Should Renault's deal with Fiat go through, Nissan will now find itself chained to the larger entity through deeply integrated operations and cross-shareholdings with the French manufacturer. She said the companies have been discussing a merger for weeks but the French government was only informed last week.
Fiat Chrysler (FCA) wants to merge with French automaker Renault.
The proposal indicated that Renault's existing alliance with Japan's Nissan and Mitsubishi could continue and that the companies would benefit financially from the deal through extra savings.
A deal could also have profound repercussions for Renault's 20-year-old alliance with Nissan, already weakened by the crisis surrounding the arrest and ouster of former chairman Carlos Ghosn late last year.
Since then, rumors about an FCA merger with Renault compatriot PSA Group, as well as Volkswagen Group, Hyundai, and Chinese automaker Great Wall have also come and gone.
"FCA fits as well with Renault as it does with PSA", Jefferies analyst Philippe Houchois said in a note.
"Renault now has its hands full with its alliance partner Nissan; it's unthinkable that this partnership will be abandoned", Frank Schwope, an auto industry expert at German commercial bank NordLB, said in a research note. "We need giants to be built in Europe". The deal proposed by Fiat Chrysler would give it access to the Canadian and USA markets.
As an unintended outcome, the consideration of a merger with FCA has renewed concerns over the sustainability of the Renault-Nissan Alliance.