The much-anticipated merger between two automobile giants Fiat Chrysler and Renault has driven EU markets upward with excitement over the new marriage and the proposal to become third largest car manufacturer draw investor to have faith but analysts suggests that the company’s trading could be in a better place if they improve alliances instead of merging.
Renault RNO, +12.09% soaring 14% after Fiat Chrysler FCAU, +0.94% FCA, +7.98% announced the expected merger. Other car makers have also seen good numbers following the decision with Daimler AG DAI, +0.69% rose 0.5%, and Volkswagen AG VOW, +0.73% jumped 1.3%. However, French automaker Peugeot Citroen’s shares fell more than 3% on the back of the news, making it the worst performer in the European autos sector.
While the merger excites many, analysts have said that there could be challenges the two companies may face moving forward. “We see many challenges, from deal terms to restructuring and politics, but also very high complementarity, from geographic positions to EU scale, segments and LCVs,” Jefferies said.
On the other hand, Citi analysts have suggested that alliances are a better option rather than complicated mergers, but they are also hopeful that the market will react either way positively.
If the merger happens, it will create a car company with a combined value of $37 billion and annual vehicle production of almost nine million passenger cars.
EU Market Rose Amid Election Results
In general, the EU markets have spiked up following the EU elections and are expected to see the numbers pinned down as U.S. and London markets are closed for the holiday. The results of the EU elections have prompted a 2% spike in the EU market following the exit polls’ release showing that pro-EU parties won the majority, albeit with shrinking support, though euro-skeptic parties did not walk away with as many victories as expected.