PARIS (Reuters) - Nissan Motor (7201.T) has drawn up proposals to exit Renault (RENA.PA) control by purchasing a larger stake in its French parent, sources told Reuters, amid an escalating power struggle between Renault-Nissan alliance boss Carlos Ghosn and the French state, Renault’s biggest shareholder.
In a three-page document passed to the French government, the Japanese carmaker calls for deep changes to the 16-year-old alliance, giving the companies equal weight in joint decisions and “better balanced” cross-shareholdings of 25-35 percent, government and company sources said.
Renault currently holds 43.4 percent of Nissan and the casting vote in their Dutch-registered Renault-Nissan BV management structure. Nissan in turn owns a non-voting 15 percent of Renault.
The Nissan demands are a response by 61-year-old Ghosn, CEO of both carmakers, to a surprise April move in which Economy Minister Emmanuel Macron raised France’s Renault stake from 15 to 19.7 percent - informing Ghosn in a phone call only hours before the transaction took effect.
The stand-off marks a new low in Ghosn’s relationship with the French government. It also threatens the future of an automotive pairing hailed as a rare success story in an industry whose recent past is littered with failed mergers.
France’s stake increase, described as temporary, allowed the government to force a permanent doubling of its voting rights through the company’s shareholder meeting by blocking Ghosn’s proposed opt-out from a new law entering force next year.
A retaliatory plan to hand more power to Nissan - by restoring its voting rights in Renault to counter the government’s increased clout - already has the Renault board’s support. French state representatives abstained from the April 16 vote and have since contested its legitimacy, sources said.
But the new Nissan proposals, in a Sept. 3 note initialled by Ghosn’s second-in-command Hiroto Saikawa, go much further.
Under French and Japanese law, the proposed 25-35 percent cross-shareholdings would allow Nissan to vote as Renault’s biggest shareholder while depriving the French carmaker of any reciprocal say at Nissan meetings.
That amounts to a “reversal of the balance of power within the alliance to the detriment of Renault”, according to a French government source.
Responding to a Reuters report, Macron told reporters: “We want to maintain the balance of this alliance. (Renault-Nissan) must not be destabilised by governance changes or adjustments that could also lead to conflicts of interest.”
The government has privately criticised Renault board members for backing measures it says would undermine the company, also highlighting Ghosn’s divided CEO responsibilities.
“I’m not worried,” Ghosn said at a media event in Tokyo ahead of this week’s autoshow, declining to comment on the Nissan proposals. “We’ve faced challenges in the past but we’ve overcome them.”
“All stakeholders want the alliance to be successful - we all agree on that goal, with no exception,” he added.
The clash with Macron, 37, a Rothschild banker turned Socialist government minister, has exposed rival visions for the alliance that began diverging at its 1999 origin, when Renault took its first controlling stake in a near-bankrupt Nissan.
Renault’s control is enshrined in an alliance master agreement allowing the French partner to appoint top Nissan executives. It also bars either company from issuing new shares or buying the other’s stock without approval from its board.
Anxious to safeguard domestic jobs and investment, France is determined to maintain influence over Renault-Nissan and would support a full merger “only if the state remains the biggest shareholder”, in the words of one official.
But Ghosn has consistently treated Nissan as an equal partner and previously tried to adjust the formal power balance to reflect economic reality: Nissan has outgrown its parent to account for two-thirds of combined vehicle sales and a bigger share of profit.
Some aides see Nissan’s demands as a ploy to persuade Macron to give up some of the doubled voting rights due to take effect on April 1 - as France uses the so-called Florange law to wield more shareholder power through its various company holdings.
“This is a tactical game in which Ghosn is making clear the extreme irritation provoked by the state’s intervention,” said a source close to President Francois Hollande’s administration.
Ghosn’s warning shot may be effective only if the government believes he is prepared to follow through with strategic steps against Renault’s main shareholder.
Such open defiance has been considered before, according to two people with direct knowledge of Renault-Nissan discussions - and may now be more likely following Macron’s April move.
During a 2011 scandal in which Renault was hoaxed into firing three executives falsely accused of selling company secrets, Nissan feared Ghosn might be replaced by a French appointee who would reassert the smaller carmaker’s control.
“They had a look at what the steps were for a nuclear option,” said one source. Under the template that emerged, “both boards declare the master agreement invalid and move quickly to have Nissan buy Renault shares and Renault sell Nissan.”
In the end, Renault Chief Operating Officer Patrick Pelata resigned over the botched espionage investigation, relieving the pressure on his boss and averting a showdown.
The next step in the current situation, according to Nissan’s submission, could be a formal request to the Renault board, which meets in December, to modify the master agreement.
Nissan is now seeking an equal partnership, based not only on trust “but also by contract”, it says, to shield the Japanese company from Paris interference through Renault.
Macron on Tuesday reiterated his pledge to pare France’s Renault stake back to 15 percent, which would command 28 percent of votes at the next shareholder meeting - an effective blocking minority. The current 19.7 percent holding would likely command an outright majority if the sale is put off beyond April.
That prospect may have become more likely.
Options purchased to ensure a minimum resale price on the shares - down 13 percent since April - are now being settled for cash, the government has said, leaving its raised holding intact. The hesitation has little to do with market conditions.
“We knew from the start we might not sell, regardless of the markets, if Ghosn showed no signs of cooperating,” said a government source with knowledge of the discussions.
Senior officials are sitting on the full holding for now, he said, “because they are nervous about what Ghosn is planning.”
Reporting by Laurence Frost and Gilles Guillaume; Additional reporting by Naomi Tajitsu in Tokyo and Gregory Blacher in Paris; Editing by Ian Geoghegan