Renault-Nissan Alliance puts in place ‘stability covenant’ to sooth Nissan, non-interference promised

It is not the most balanced of partnerships. Renault came to Nissan’s aid when the latter was on the verge of bankruptcy in 1999, and holds a big stake (43.4%) in the Japanese company as a result. Nissan in turn was given a 15% non-voting stake in Renault, the big brother in the Franco-Japanese cross-shareholding alliance.

But since then, Nissan has grown to be a more profitable company than its French partner, with a larger market value and greater sales figures. The Yokohama-based carmaker contributed 1.56 billion euros to Renault’s bottom line last year. Technically, it deserves a bigger say in the Alliance, and that’s even before a third actor stirred the pot.

According to Bloomberg, France increased its stake in Renault to 19.74% without informing CEO Carlos Ghosn in advance. The move was meant to boost the government’s power at one of the country’s key manufacturers by pushing through a loyalty-shareholder program, which doubled the voting rights of investors who have held stock for over two years. Renault’s board includes two reps of the French state.

That would have effectively given France control over Nissan, which stake in Renault is non-voting. It’s a fundamental issue that could break up the 16-year old Alliance, although the fire has been doused, for now.

Following a Renault board meeting in Paris and a Nissan board meeting in Tokyo last week, Alliance chairman and CEO Carlos Ghosn issued a statement:

“After months of discussions, I am happy to say that an agreement has been reached that builds on our heritage and strong foundations to achieve further sustainable growth and success of the two partners. While there were important short-term issues to address, it was imperative that all involved took a long view,” Ghosn said. The agreement is based on three points:

• The principle of the French government’s double voting rights within Renault to be maintained as of April 1 2016, and a contract between the French government and Renault caps its voting rights at 17.9%, up to 20% in case of an unusually high quorum at the shareholders general meeting
• No enfranchisement of Nissan shares in Renault
• A contract between Renault and Nissan providing for non-interference in Nissan’s governance by Renault

The last point is an important one in the so called “Stability Covenant” and the non-interference in Nissan’s governance will include Nissan shareholders’ decisions on the appointment, dismissal and compensation of Nissan board members.

Nissan didn’t succeed in activating voting rights for its 15% shares in Renault, although the deal means that it will not need to cough out money to increase its stake in Renault to counter the French government’s influence.

Crisis averted for now, but as long as the fundamental issue of Nissan’s under-representation in the Alliance isn’t solved, there will be rumblings. “This is only the first round of the battle. For the time being everybody will be comfortable, but there will be second round down the road,” said Koji Endo, an analyst at Advanced Research Japan who’s covered the sector for more than 30 years.

It’s impossible to not have fights in a marriage, but when a third party is involved…

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