Analysis:Renault cuts Nissan stake

LONDON/TOKYO: Renault SA has made significant steps to simplify its complex alliance with Japan's Nissan Motor Co. However, it still faces a difficult road to escape the conglomerate discount which has plagued its shares for years. Details of the...

CEO of Nissan Makoto Uchida and CEO of Renault Luca De Meo join a news conference in London to announce a new agreement between Nissan & Renault on February 6, 2023.

LONDON/TOKYO - Renault SA has made significant steps to simplify its complex alliance with Japan's Nissan Motor Co. However, it still faces a difficult road to escape the conglomerate discount which has plagued its shares for years.

Renault will reduce its Nissan stake from around 43% to 15%, as previously announced. Importantly, Nissan will be able to vote for its 15% share of Renault, resolving a long-standing imbalance at the Japanese company.

Renault will now operate like a normal company under the new setup, CEO Luca de Meo stated at the presentation. He was flanked by Makoto Uchida, Nissan CEO, and the head of Mitsubishi Motors Corp's junior partner.

Although Renault was the one that saved Nissan over two decades ago, it is still the largest automaker in terms of sales. Conglomerate discount investors bought Renault's shares, valuing it at times at a fraction of its Nissan stake. This has highlighted the lopsided nature that this relationship is.

Morgan Stanley calculated the intrinsic value of Renault's shares, including its stakes at Nissan and Daimler, at zero during the 2008 financial crisis. After the value of its financing unit had been removed, the shares were valued at EUR17 each.

Ghosn's arrest for financial misconduct charges - he later fled Lebanon, where he resides, and claims he is innocent – further soured the alliance and brought down decision-making.

According to a source, Renault will eventually be able to sell its Nissan stake worth EUR3.8 billion (US$4.1billion) under the new agreement. This will allow Renault to make a huge profit while keeping the alliance alive. Renault will for the moment put the shares in a French trust, and continue to receive dividends.

Ampere, which is valued at as high as 10 billion euros according to sources, is also being listed by Renault. On Monday, however, de Meo refused to give a valuation of the unit and said it was up to market to do so.

There has never been one stock that stands out from the rest. According to Refinitiv, Nissan's shares have returned 86% over the alliance's 24-year history, including dividends. Renault's returns were more than twice as high, at a staggering 86 percent. Renault sees a 14% increase, while Nissan gets a gain of 2 percent by removing dividends.

Moody's Ratings Agency has stated that Renault could get significant value by selling its Nissan stake and getting its partner in Ampere. This would allow it to reduce its debt and increase capital allocation.