A Merger of Equals? Fiat and Renault Consider Combining in Deal Worth $39 Billion

As demand for electric and self-driving cars increasing, traditional automotive makers are starting to take notice. The latest are Fiat Chrysler and Renault who announced yesterday they are considering a “merger of equals” in which shareholders on each side would receive 50 percent of the combined company. The deal would create one of the largest automotive makers globally with a market value of $39 billion.

Fiat and Renault are not the first to react to the changes in the automotive industry as the demand for electric and self-driving vehicles grows and consumers become more comfortable with ride-sharing. Other traditional car manufacturers have made moves to combat a decline in automotive sales. GM holds a stake in ride-hailing company Lyft and Ford has invested in e-bikes, software, and other ventures under its Ford Mobility business.

With Renault’s electric Nissan Leaf vehicles and Fiat’s access to the US market, the acquisition makes sense, if the deal is a success. What is a bit concerning about the transaction is the phrase “merger of equals.” One of the most notable time we heard of a “merger of equals” was the AOL – Time Warner deal and we all know how disastrously transaction ended up.

Although a merger of equals sounds nice in theory, in practice there are often multiple hurdles to success. Here are three common issues:

  1. Ego – As today’s Dealbook column puts it, “Are the management teams now ego-free enough to pull this off?” Chief executives and management teams are only human, and emotions often get in the way. Sometimes leadership tries to circumvent this issue by splitting the chief executive and president role between the two top leaders, but this can create its own set of issues when it comes to decision-making down the road, which brings us to point number two.
  2. Lack of clarity – If the two leaders from the equally combined company have a difference of opinion about the direction of the firm, what happens? Lack of focus and trying to please too many constituents can ruin a company’s strategy and although various team members such as board members or other senior-level executives may contribute to developing the company’s strategy and advising on direction, at the end of the day one person has to be the ultimate decision-maker.
  3. Culture clash – Large corporations have their own company culture, which may be magnified with Fiat headquartered in Italy and Renault headquartered in France. Integrating two workforces is never a simple task and the added pressure of representing each side equally may be challenging.

These common challenges do not mean this merger is doomed to fail. From a strategic perspective, the newly merged company may be better poised to navigate today’s market and compete against self-driving and electric car manufactures, and ride-sharing companies. One thing is certain, acting to remain relevant and follow consumer demand is the right decision for traditional auto makers. For now, we’ll need to wait and see if this merger is the right course of action or Renault and Fiat.

Photo credit: Martin Abegglen via Flickr CC BY-SA 2.0