Renault, Nissan boost ties

October 30, 2001 Posted: 1323 GMT

TOKYO (Reuters) -- Nissan Motor Co. and Renault SA moved to deepen their alliance Tuesday, saying the Japanese automaker would take a 15 percent stake in Renault and the French automaker would increase its holding in Nissan.

Predicting that the deal would be completed by mid-2002, the two companies said Renault would lift its ownership in Nissan to 44.4 percent from 36.8 percent.

Nissan, Japan's No. 2 automaker, will acquire its stake through a reserved capital increase and the French government's 44.2 percent stake in Renault would initially fall to 38 percent.

The French state said it plans to cut its stake eventually to 25 percent, selling Renault shares in a public offering with the timing dependant on market conditions.

The moves were partly foretold in the automakers' original 1999 alliance agreement which stipulated Nissan could purchase Renault shares when it had the financial leeway to do so.

Renault's option to increase its stake to 44.4 percent at 400 yen ($3.28) per share, for a total of two billion euros, was part of the agreement although the timetable has been brought forward.

The announcement can be seen as an affirmation of Nissan's turnaround from a once-floundering company, the automakers said.

"In 1999, people were skeptical about whether the investment would be successful. To them, I can say your skepticism was misplaced," Renault Chairman Louis Schweitzer told the news conference.

The automakers will create an equally owned management company to steer alliance strategy. The company, which will be based in the Netherlands, will have sole responsibility for decisions on mid- to long-term planning, product and on matters of financial policy. It will not have management responsibility over the two automakers' boards.

The two automakers are roughly equal in size, with Nissan slightly edging ahead with 2.6 million vehicle sales last year compared with 2.4 million for Renault. They also have seen a reversal of fortunes in recent months to some extent.

Nissan said earlier this month it expects record operating profit of 187 billion yen for the first half of the business year, ended in September.

In contrast, Renault warned last week that profitability may worsen in the second half from an already weak first half. Most of its profits now come from its stake in Nissan.

The deal is not without its critics, who see eroding shareholder value for both Nissan and Renault investors, and signs that such a deal was in the works have weighed on both their stocks in recent days.

Prior to the announcement Nissan (NSANY: Research, Estimates) shares ended in Tokyo down 27 yen, or 4.66 percent, at 553 yen, much lower than a recent high of 620 yen last Thursday.

Renault shares were trading down about 5 percent at 32.50

in midday Paris trading.