Nissan Motor Co. Ltd. is expected to approve as early as March 27 a proposal to sell a controlling share to France's Renault SA, creating the first major equity alliance between a Japanese and European automaker.
Last-minute snags could derail the deal, which envisions that Renault buy about 35 percent of Nis-san for about $4 billion. But Ren-ault signaled last week that it expects directors of financially troubled Nissan to approve.
'If Nissan's board accepts our offer, I'm convinced that Renault and Nissan, led by determined management, will combine their forces to find significant synergy and make up one of the major players in the global auto industry,' Renault Chairman Louis Schweitzer said in Paris on Friday, March 19.
On that same day, Nissan's board reviewed Renault's proposal without taking formal action on it. However, Japanese broadcast network NHK said there were no substantial objections to the Renault offer.
The alliance, which would fall well short of a full merger, would mark a bold move by the French company to become big enough to compete globally. Under the partnership, Renault vehicles could gain access to North American and Asian markets while financially troubled Nissan would get a much-needed cash injection.
At the same time, Renault would benefit from Nissan's engineering and manufacturing expertise, and Nissan could gain from the French company's styling panache and superior marketing sense.
But analysts and industry executives caution that the alliance would have to overcome enormous business and cultural hurdles before realizing any benefits.
Indeed, three separate rating agencies last week issued reviews of Renault's debt 'with negative implications' after the French company disclosed its offer for part of Nissan.
'As much as has been made of the culture clash between Daimler and Chrysler, it will be nothing compared to Nissan and Renault,' said Wes Brown, an analyst with Nextrend in Thousand Oaks, Calif.
'At their core, they both are nationalistic and patriotic, and each believes its way is the right way to do things. We will have quite a teething period for the first year or two as they feel each other out. It's a complex thing to work through.'
As the deal appears to be shaping up, Renault would spend
$4 billion to $5 billion for 35 to 40 percent of Nissan.
That would give Renault a veto over board-level decisions, but it would not allow Renault to shuffle Nissan management or directly set strategic plans for Nissan.
Thus, direction of Nissan could fall victim to a slow process of negotiation, analysts warn.
'I would have preferred Renault to take 51 percent even if it meant having to assume Nissan's debt on its balance sheet,' said a London-based investment banker who asked that his name not be used.
'That way, Renault could have become the real boss and set some firm direction, rather than having to negotiate from the position of a 35 percent stake.'
Takaki Nakanishi, auto analyst at Merrill Lynch Japan, agreed that the success of the alliance will hinge on Renault's ability to lead.
'I think it's going to be a huge cultural confrontation,' Nakanishi said.
'Nissan definitely needs to accept change. The degree of success will be highly dependent on the degree to which Renault's culture can be diffused into Nissan's conservative, quasi-public bureaucracy culture.'
Under Renault's proposal, it also would acquire 10 percent of Nissan Diesel Motor Co., which it could pair with its RVI and Mack Truck units.
In addition, Renault is expected to name four to seven senior executives to Nissan's board and install another 20 to 30 mid-level Renault managers at Nissan.
Renault Executive Vice President Carlos Ghosn is expected to become Nissan's COO; Nissan President Yoshikazu Hanawa would become CEO.
Nissan Chairman Yoshifumi Tsuji said he will resign if the deal goes through.
Ghosn, one of four Renault executive vice presidents, heads manufacturing, engineering and purchasing. A tough manager who came from tire manufacturer Michelin, Ghosn is widely considered to be Schweitzer's No. 2 at Renault.
He joined the company in late 1996 and is point man on Renault's current cost-cutting program. He is said to have convinced Schweitzer in March 1997 to make the politically explosive decision to close the Renault plant in Vilvorde, Belgium.
Although Nakanishi and other analysts said they do not expect savings from sharing platforms or parts to show up for at least three years, the deal will bring some immediate benefits to the parties.
Nissan, in particular, will be able to use Renault's cash injection to pay down its debt, which was a whopping $35.8 billion as of March 31, 1998, the end of the last fiscal year.
Other benefits will emerge, insiders said.
'When you visit Nissan's plant in Yokohama and realize it's running at 50 percent of its nominal capacity, you clearly know what needs to be done,' said a top Renault executive.
According to the same source, in addition to financial issues, purchasing costs, innovation processes and product planning, Renault can help Nissan in a number of critical areas - if it is allowed to.
'Common operations, such as sharing a plant and decisions regarding common models or platforms, should happen quickly, as soon as 1999, if the deal is concluded,' said a Renault insider.
'Renault can bring a lot to Nissan in small cars in the European market. By 2004, it's very likely that the successors to the Clio (Renault's small car) and the Micra (Nissan's equivalent in Europe) will be based on a single platform.'
Christophe Laborde, auto analyst with ING Baring in Paris, also pointed out that Nissan light trucks could be very useful to Renault in places such as South America, where the French company has two assembly plants.
'On the other hand, I do not believe there are any immediate synergies for the two companies in the U.S. market,' said Laborde.
'FILL PLANTS OR ... SHUT 'EM'
Plants also may be consolidated in Europe. Nissan's plant in Sunderland, England, is the most efficient car plant in Europe, and its plant in Barcelona, Spain, makes sport-utility vehicles that Renault does not have.
Cutbacks are likely as production is rationalized. Nissan is using only 70 percent of its capacity in its seven Japanese plants.
'There are only two ways to solve overcapacity: either you fill plants or you shut them,' said a Renault executive.
In Japan, where Renault's sales last year were a paltry 2,128, the French automaker could get a major boost.
Akira Yokoi, executive vice president of Toyota Motor Corp., recently dismissed Nissan as having 'nothing' in the small end of the car market, where the new Toyota Vitz competes. The Vitz will be the Echo in the United States; it is the Yaris in Europe. In contrast, he said, Renault's Clio and Twingo are very attractive cars.
'If the tie-up brings more of those cars into Japan, the competitive balance could shift,' Yokoi said.
Analysts said the key to the success of the arrangement lies in getting Nissan beyond its current financial woes. 'What we need for this company is not short-term profitability, but meaningful long-term restructuring,' said Merrill Lynch's Nakanishi.
Jason Vines, Nissan North America spokesman, agrees that the payoff horizon is long-term, not short. 'Renault will want a say in how things are run, but Nissan saw this as a partnership for the future, not a bailout,' he said.
'Just because it hasn't been done doesn't mean it can't be done. If you're good in business, you can do it in any language. Saying otherwise is a cop-out.'
Staff Reporter Mark Rechtin in Los Angeles contributed to this report