Pricey love

Renault/Daimler: Investors spotted a winner when talks between Renault and Daimler seemed to be getting serious at last in February. Since then, they've added almost 6 billion euros ($8 billion) to the French and German automakers' combined market capitalisation. That exceeds the 2 billion euros of synergies the companies expect the deal to generate over the next five years.

The market may not be overly enthusiastic. If the partnership works, the strong industrial logic could provide even greater gains. Each partner will benefit from the other's strength. But both companies’ keenness for a useless cross-shareholding scheme is puzzling.

The partnership offers gains from scale, the sharing of technology and costs — and a boost to small cars. Daimler hasn't managed to crack that part of the market, and its Smart brand has consistently lost money. Renault can help. The two groups will build a common platform, with the aim of starting production of their still-separately branded cars in 2013. The Renault-Nissan alliance should gain from Mercedes-Benz’ high-end engineering expertise. Notably, Nissan's luxury brand Infiniti will be able to use Daimler engines.

The deal isn’t without execution risks. The Mercedes brand cachet could be diluted. The promised synergies might fail to materialise if the car market doesn't pick up. The current year remains challenging, with car scrappage schemes being phased out in France and Germany. But cost-cutting is here to stay. Under the convoluted cross-shareholding scheme, Nissan and Renault will each end up holding 1.55 per cent of Daimler, while the German group will own 3.1 per cent in both the French and Japanese companies. Renault won’t even be able to shake the French government’s heavy embrace, since the state will buy enough shares to keep its stake at the current 15 per cent.

More than 1 billion euros will be tied up in equity on each side, which the companies say is “symbolic”. But if it’s symbolic, why do it? If the only purpose is for each partner to show the other how precious they are, this is an expensive Valentine’s.