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Fiat proposes merger with Renault to create world's third-biggest automaker

Shares of both companies jumped over 10 per cent on the news of the offer, which would see each side's shareholders split ownership in the new manufacturer

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Fiat Chrysler proposed on Monday to merge with France's Renault to create the world's third-biggest automaker and save billions of dollars needed to invest in the race to make new electric and autonomous vehicles.

The merged company would reshape the global industry: it would make some 8.7 million vehicles a year, leapfrogging General Motors and trailing only Volkswagen and Toyota.

Shares of both companies jumped over 10 per cent on the news of the offer, which would see each side's shareholders split ownership in the new manufacturer.

Renault welcomed the idea. The company's board met Monday at its headquarters in Boulogne-Billancourt outside Paris to discuss the proposal and said afterward that Renault will study it "with interest."

In a statement, Renault said such a fusion could "improve Renault's industrial footprint and be a generator of additional value for the Alliance" with Japan's Nissan and Mitsubishi.

Fiat Chrysler's offer comes at a key moment for Renault. The French manufacturer had reportedly wanted to merge with Nissan, but those plans were derailed by the arrest of boss Carlos Ghosn on financial misconduct charges in Japan.

Now, questions are growing over the Renault-Nissan-Mitsubishi alliance , which is the biggest maker of passenger cars in the world. While Fiat Chrysler says the merger with Renault would accommodate the alliance, it is unclear how the Japanese companies might react in the longer term to being tied to a much larger partner.

A merger would save 5 billion euros ($5.6 billion) for the two companies each year by sharing research, purchasing costs and other activities, Fiat Chrysler said in a statement. It said the deal would involve no plant closures, but didn't address potential job cuts. The companies are somewhat complementary: Fiat Chrysler is stronger in the US and SUV markets, while Renault is stronger in Europe and on electric vehicle developments. Together, they would be worth almost $40 billion euros.

The French government, which owns 15 per cent of Renault, is "favorable" to the idea of a merger with Fiat Chrysler but wants to study its conditions more carefully, especially in terms of "Renault's industrial development" and employees' working conditions, government spokeswoman Sibeth Ndiaye said Monday.

Such a merger would show "our capacity to respond to European and French sovereignty challenges in a globalized context," she said. "We need giants to be built in Europe." France's influential CGT union warned against job cuts in a merger, and said it wants the French government to retain a blocking stake in any new company.

Italian officials sounded open to the deal. Matteo Salvini, the leader of the rightwing populist League party and the deputy premier, said that "if Fiat grows, it is good news for Italy and Italians," though he warned a deal should protect "every single job."

Investors welcomed the proposal, pushing shares in Fiat Chrysler up 10 per cent and Renault 14 per cent in European trading. Nissan Motor Co. Chief Executive Hiroto Saikawa wouldn't comment directly on the idea but said, "I am always open to exchanging constructive views on strengthening the alliance." He was shown speaking to reporters on Japan's Fuji TV news.

Fiat Chrysler estimated that Nissan and Mitsubishi would make 1 billion euros in savings a year from the deal.

Collaboration between automakers has taken on importance in recent years as they seek to build their technological capabilities in pursuit of electrical vehicles, net connectivity and artificial intelligence for vehicles. Automakers are also under pressure from regulators , particularly in Europe and China, to come up with electric vehicles so they can meet tougher pollution limits.

During an earnings conference call earlier this month, Fiat Chrysler CEO Mike Manley told shareholders that he believed that there would be "significant opportunities" in terms of strategic partnerships or alliances in the next two or three years.

Manley said Fiat Chrysler was taking action to address weaknesses in Europe.