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StockBeat: Time for Fiat-Renault-Nissan, Round 2

By Geoffrey Smith -- It’s time for round two of the three-way boxing match that is Fiat-Renault-Nissan.

As we noted two weeks ago, the underlying pressure for consolidation isn’t going away, so it’s best to view the sudden announcement of Fiat Chrysler's(MI:FCHA) original merger bid, and its equally sudden withdrawal, as just the opening salvoes in what is likely to be a drawn-out negotiating process, an attempt at jockeying for position by all three parties.

The first round served to illustrate that Renault (PA:RENA) is highly vulnerable to opportunist bids unless it repairs its damaged alliance with Nissan (T:7201). Renault’s market capitalization is currently 16 billion euros, but its 43% stake in Nissan is worth 10.5 billion and it has over six billion in cash, so that gives you an idea of what the market thinks its car business is worth.

Round one also proved that even if they don’t want to pursue a full merger, the French and Japanese can still both block each other’s plans, which is no-one's interest. Renault retaliated to Nissan’s abstention on the merger deal by abstaining a key vote on essential governance reforms at Nissan. And, as noted previously, it proved that the French state cannot hope to run a company spread across the U.S., Europe and Asia.

As those lessons are absorbed, positions are shifting, although whether they will move enough to end the current impasse is still far from clear. Nissan’s CEO Hiroto Saikawa told the Financial Times that Nissan “must make its peace” with the French company, while French Finance Minister Bruno Le Maire told AFP that he’s ready to cut the government stake in Renault if that’s what’s needed to solidify the alliance with Nissan. Interestingly, he said nothing about what it might take to revive the interest of Fiat.

As for Fiat, Italian newspapers are reporting this morning that it may now look at Hyundai in its quest to bulk up. The move would add a little scale and some distribution synergies, but little else – especially since Hyundai, like Fiat, is a late arrival the electric vehicle party. Renault-Nissan would remain the more attractive partner, but it risks becoming the junior partner in any deal if the Franco-Japanese alliance cements itself first.

What’s set to be a long-running drama is unfolding against a more positive backdrop on Tuesday morning, as European markets follow Asia higher on reports that Beijing has instructed local municipalities to open the spending taps again. That’s a form of economic support that’s less likely to antagonize the U.S. than letting the yuan slip, as was feared before the weekend. The Chinese currency has been stable so far this week.

By 5:30 AM ET (0930 GMT), the benchmark Euro Stoxx 600 was up 3.1 points or 0.8% at 381.40. The U.K. FTSE was lagging, up only 0.5%, after a mixed labor market report added to fears for the economy after a sharp drop in monthly GDP in April. Germany’s Dax was up 1.3% at a four-week high, catching up on Monday’s rally after a public holiday. France’s CAC 40 was up 0.7%.

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