While Renault succumbed to French government intervention which stops it taking strategic decisions unions might not like, some investors say there is a possible bright side which could include finally unlocking the value of Nissan, its alliance partner.
Others say the government action might prompt a new kind of organization at the French-Japanese alliance, modeled on the holding company which runs the merged British Airways and Spain’s Iberia.
The French socialist government, using the so-called Florange law, bought shares on the market to temporarily raise its stake to 20 percent from 15 percent in Renault to block an annual meeting resolution that would have curbed its power. This law allows long-term shareholders to double their voting power if shares are held for more than two years. Previously, companies had to opt in to this power. The Florange law makes it automatic.
At the Renault annual meeting on May 1, the French government used this extra voting power to block a move to sidestep this law, requiring a two thirds majority. The government has said it planned to sell the shares again after the annual meeting.
Barclays Equity Research analyst Kristina Church said this action might provide the positive catalyst for a change in the structure of the Renault-Nissan alliance. Investors have for years wondered how the greater value of Nissan could be unlocked for Renault shareholders.
Renault has a 43.4 percent stake in Nissan. Nissan owns 15 percent in Renault and has no voting rights.
“While it looks likely that the French state will have enough voting power to ensure the law allowing double-voting rights gets enacted at Renault, we believe this may provide a trigger for Renault and Nissan management to review the current structure of their cross-shareholdings,” Church said in comments published before the annual meeting.
“The conclusion may involve an increase in voting power for Nissan or indeed some form of fuller cooperation between the two businesses. We currently assign a 20 percent conglomerate discount to Renault in our Sum of the Parts valuation but could see this being unlocked were there any future change in ownership structure,” Church said.
The Wall Street Journal’s Heard on the Street column Wednesday said the French government action had knocked the Renault Nissan alliance off balance.
“Righting that could mean taking inspiration from International Consolidated Airlines Group, the parent company of British Airways and Iberia,” Journal columnist Thao Hua said.
This arrangement allows British Airways and Spain’s Iberia to run autonomously with their own brands, management and operations. But both carriers benefit from scale in areas like purchasing, while a cleaner corporate structure should help lessen potential conflicts of interest, Hua said.
Last year Nissan sold about 60 percent of the alliance’s total 8.47 million vehicle sales and contributed 80 percent of Renault’s group net income, according to Hua. Currently, they behave in many ways like one company, and build cars on common platforms.
Meanwhile Renault is on a product role, and analysts like Church say this could lead to improved profit potential.
In 2016-2017, Renault will reap the benefit of sharing a Nissan platform for its renewal of mid-to large sedans, these analysts say. This could cut large car losses by around 400 million euros ($450 million) a year. The new Espace MPV is out, the new Renault Kadjar compact SUV, similar to the Nissan Qashqai, arrives soon, the new big Laguna sedan late this year and the new Megane compact sedan early in 2016.