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Proposed Merger Between Fiat Chrysler And Renault Fraught With Major Execution Risks

Fiat Chrysler and Renault merger, worth $40bn, that was all set to create the third-largest global automaker, is not a done deal yet. Announced on Monday, the merger suffers from several significant execution risks. Even if the deal is finalized, it will likely be between 12–18 months before it sees the light of completion. Moreover, business models of both companies are very complex with powerful and influential executive teams especially that of Renault, because of its alliance with Mitsubishi and Nissan Motor, making choosing leaders for combined company a difficult task. This deal comes at a time when market condition is already critical with slowing global sales post 9 years of growth. Ex-deputy chief executive of Chrysler Group, Jim Press, referred to the deal as a ‘historic’ one that will likely encourage more such deals in the future.

Renault has been offered a 50–50 merger of equals by the Italian-American automaker, creating a board consisting of 11 members that will be split between Fiat Chrysler and Renault equally, with Nissan getting 1 seat. Shareholders of Fiat Chrysler would receive dividend worth around $2.78bn to account for higher market value of Fiat Chrysler. Both companies’ existing shareholders would receive half of new combined company. Also, the deal would save about $5.57bn on an average annually while keeping all plants open, smoothening deals with regulators, politicians and unions. The arrest of Carlos Ghosn further complicates the alliance.

If the deal actually takes place, John Elkann, Chairman of Fiat Chrysler will likely fill the same role at new combined company with Jean-Dominique Senard, Chairman of Renault, becoming the CEO. But a fight could originate over the filling of the position of President of the combined company, with current CEOs of both companies—Mike Manley of Fiat Chrysler and Thierry Bollore of Renault—eligible for the role. Furthermore, how production and operations are to come together and merge is still an unanswered question. Alfa Romeo serves as the next uncertain point of the proposed deal.

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