Breakingviews – How Nissan could get the upper hand with Renault

Breakingviews – How Nissan could get the upper hand with Renault

Nissan and Renault’s standoff could quickly descend into a demolition derby. The Japanese carmaker wants more say in the alliance.

Given the partnership’s lopsided governance, Nissan’s best bet would be to snap up shares in Renault, neutralising its controlling stake. The exit of Nissan Chairman Carlos Ghosn makes such a radical move easier.

The scandal involving the Renault boss aggravates an already fraught relationship. After two decades, the larger Japanese group wants to renegotiate an alliance under which the two carmakers own stakes in each other and share costs.

The problem is that the French group holds the keys. Its 43 percent stake in Nissan is larger than Nissan’s 15 percent stake in Renault. Moreover, French rules governing how companies treat shares held by a subsidiary mean that because Renault owns more than 40 percent of Nissan, the Japanese group’s shares in Renault don’t carry any voting rights.

Happily for Renault, the same rules in Japan only kick in at a 25 percent threshold, meaning its shares in Nissan still carry weight. The Japanese group could offer to buy back shares from Renault, but there’s little reason to think the French would sell.

Nissan could try to dilute Renault. Ghosn’s exit, and that of his alleged accomplice Greg Kelly, have left two spaces on the nine-member Nissan board. That would make it easier for Chief Executive Hiroto Saikawa to launch a pre-emptive share issue to, say, a friendly Japanese investor. But Renault might just buy more shares in the market, keeping its stake above 40 percent.

A raid on Renault would be more effective. If Nissan’s stake in the French group rises above 25 percent, Japanese cross-shareholding rules should kick in, and Renault’s Nissan shares would lose their voting power. That would cost 2.1 billion euros, assuming a 20 percent premium to the current Renault price, just one-quarter of the Japanese group’s cash pile. Renault could retaliate by trying to dilute Nissan, but the Japanese group has the firepower to keep buying.

There are two problems with this strategy. It would violate an agreement that stops Nissan raising its stake above 15 percent. But accusations of Ghosn’s meddling might give Saikawa a justification, as he can raise the holding if Renault interferes in Nissan’s business. Second, it would infuriate the French government. But given the uneven situation, Saikawa has little negotiating leverage otherwise. A diplomatic tiff may be a fair price for freedom.