Tuesday, April 28, 2015

Hands off my Partner! France shows how a Third Party Can Complicate an Alliance

There is excitement in the business press around the dealings that the state of France has with car maker Renault, and the impact this could be having on the alliance of Renault and Nissan. The story starts with complicated maneuvers by the Economy Minister (this is France, after all), which are interesting enough to mention, but I will soon get to the alliance issue.

The start of the excitement is that the French government made a change in the stock voting rights late last year that benefits long-term investors, because they get double voting rights, so double the power, if they have held the shares for two years or more. But there is more to the law; it can also be used to favor French or other European shareholders over others, and specifically it lets the French state get double voting rights on its shares. That is a big power grab in a nation that has large state shareholding of many companies. The French government has assured managers and other owners that their intentions are purely beneficial and they do not intend to discriminate against others. The very existence of the law, and past French Economy Minister behavior against firms, place that assurance very much in doubt.

But enough legal issues, over to alliances. The Renault – Nissan alliance is famous as one of few very successful cross-border alliances of large firms. It started more or less as a rescue of Nissan, which was in bigger trouble than Renault when it was initiated, though neither firm was healthy. As a result, both firms own a portion of each other, but Renault has voting shares over Nissan but not the other way around. And what started as a rescue led to very significant success and growth. Now Nissan has double the car sales of Renault.

The Renault CEO Carlos Ghosn has made big personal investments in making the alliance work, and has drawn much credit from its success. He reacted quickly against the new law through seeking to make a special Renault exemption from it (this is legal), as well as speaking publicly against the law. No doubt he is doing this because Nissan enjoys their relation with Renault but do not trust the French state.  Indeed, he has been supported by his board of directors, as well as from the Nissan board of directors. He has until recently looked like he would be able to get a majority of Renault stockholders to vote for the exception, as he is required to do.

And now I need to bring the French state maneuvers back into the story. The Economy Minister Emmanuel Macron has arranged to buy a substantial share of Renault stock and to have options to sell them after the shareholder meeting. Translation: he is using taxpayer money to buy the votes necessary to stop Ghosn at the shareholder meeting. This is nearly certain to work, making France an even more important shareholder in Renault as intended.

What about the alliance, then? Well, it is going to be interesting. As long as France does not intervene much, it is likely that it will go on as before because Renault and Nissan are still useful for each other. But if there are problems things could change dramatically because Nissan actually needs Renault much less now than it used before. The main problem would be that Renault owns so much of Nissan that getting away from Renault would be hard. It is easy to see ways that this change in power will cause problems, and much harder to see any benefits to the alliance -- or to France.

Stacy Meichtry,  Jason Chow and Sam Schechner. 2015. France Outflanks, Outrages Renault’s Ghosn. Wall Street Journal, April 27 2015.
Greve, Henrich R., Timothy J. Rowley, and Andrew Shipilov. 2013. Network Advantage: How to Unlock Value from your Alliances and Partnerships. Jossey-Bass.