November 21, 2018 / 10:52 AM / a month ago

Breakingviews - France can best help Renault by cutting it free

French President Emmanuel Macron and Renault CEO Carlos Ghosn visit the Renault factory in Maubeuge, France, November 8, 2018. Etienne Laurent/Pool via REUTERS

LONDON (Reuters Breakingviews) - France is one of the few developed economies where the finance minister calls a press conference to mop up a corporate scandal. The problem for Bruno Le Maire and President Emmanuel Macron is that sticking their noses into Renault’s affairs risks fraying a partnership with Nissan that is essential to the French carmaker’s future.

The 17 billion euro auto group is reeling from Monday’s arrest in Japan of Chief Executive and Chairman Carlos Ghosn. Alliance partner Nissan, in which Renault owns a 43 percent stake, accused Ghosn, who is also the Japanese company’s chairman, of under-reporting his income and using company funds for personal use. The combined market value of the two carmakers has fallen by about 6 percent, or 3 billion euros, since Friday. The Japanese probe has even expanded to include a Dutch venture under Renault’s ultimate control, Reuters reported. The risk is that the partnership between the carmakers loosens once its chief architect is out of the way.

That would be bad for Renault and therefore the French government, which owns a 15 percent stake in the company. In the worst case, an unwinding of the alliance would leave Renault stuck as a subscale player ill-equipped to shift profitably to electric vehicles. A slightly less bad option is that the two sides merely fail to rectify a lopsided partnership that imposes a discount on the value of their cross-shareholdings.

Better for the state to set Renault free by selling down its stake, which is one of the hurdles to a merger since Nissan balks at French meddling. Granted, former Rothschild banker Macron would find offloading the stake politically tricky since that might be depicted by critics as putting shareholders ahead of workers. But job guarantees might soften the blow, as could the cash proceeds from a sale. Currently worth 2.6 billion euros, the value of the stake would rise if a merger were on the cards. Nor would the much larger Japanese group necessarily control the merged entity. Strip out Renault’s 43 percent stake and Nissan’s equity is worth 16.7 billion euros using the average share price over the last three months. Repeat the calculation for Renault, excluding Nissan’s stake, and it’s worth 17.1 billion euros – close enough for a merger of equals.

Le Maire said on Wednesday that the government wants to consolidate the Nissan alliance. The surest way to do that would be to step back.

Breakingviews

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