PARIS: Fiat Chrysler proposed on Monday to merge with France’s Renault to create the world’s third-biggest automaker, worth $40 billion, and combine forces in the race to make electric and autonomous vehicles.

The merged company would reshape the global industry: it would produce some 8.7 million vehicles a year, leapfrogging General Motors and trailing only Volkswagen and Toyota.

Shares of both companies jumped on the news of the offer, which would see each side’s shareholders split ownership in the new manufacturer.

Renault welcomed what it called a “friendly” offer. The company’s board met on Monday at its headquarters outside Paris and said afterward that Renault will study the proposal “with interest.” In a statement, Renault said such a fusion could “improve Renault’s industrial footprint and be a generator of additional value for the Alliance” with Japan’s Nissan and Mitsubishi.

Fiat Chrysler’s offer comes at a key moment for Renault. The French manufacturer had wanted to merge fully with Nissan, but those plans were derailed by the arrest of boss Carlos Ghosn on financial misconduct charges in Japan.

Now, questions are growing over the Renault-Nissan-Mitsubishi alliance , which together make more passenger cars than any one company. While Fiat Chrysler says the merger with Renault would accommodate the alliance and lead to savings for them, it is unclear how the Japanese companies might react in the longer term to being tied to a much larger partner.

A deal would save 5 billion euros ($5.6 billion) for the merged companies each year by sharing research, purchasing costs and other activities, Fiat Chrysler said. It promised the deal would involve no plant closures, but didn’t address potential job cuts.

The companies are largely complementary: Fiat Chrysler is stronger in the US and SUV markets, while Renault is stronger in Europe and in developing electric vehicles.

Together, they would be worth almost 37 billion euros ($40bn). Shareholders of Fiat Chrysler, which includes the holding company of the founding Agnelli family with a 29 per cent stake, would get a 2.5 billion-euro ($2.8bn) special dividend to make up for an imbalance in company values.

“This operation will bring benefits to both countries,” Fiat Chrysler Chairman John Elkann told reporters in Italy, noting that it had been 10 years since Fiat’s takeover of bankrupt Chrysler, in exchange for small-car technology and management know-how.

Published in Dawn, May 28th, 2019