Renault in exclusive talks with Nissan on alliance

Renault, the French motor manufacturer, said last night it was prepared to start exclusive negotiations with Nissan Motor on an alliance that would see it take a 35 per cent stake in the Japanese group's capital.

The partly state-owned group said it was "now convinced of the merits of a strategic alliance" between the two groups, in what would be the latest example of consolidation in the sector.

It was offering "without delay" to start exclusive negotiations with the Japanese company on the conditions of such an alliance. These included "in particular the acquisition by Renault of an equity stake in the capital of Nissan representing an interest of approximately 35 per cent".

Nissan immediately stated it was accepting Renault's offer of exclusive negotiations. The announcement gave no indication of the cost to Renault should a deal be consummated, although trade union sources said the figure was estimated at 32 billion (#4.88 billion) and that the alliance included both Nissan's car and truck businesses. It would almost certainly be the largest single investment by an overseas company in a Japanese motor manufacturer.

A decision on whether the deal is to proceed is expected by the end of this month.

A 35 per cent stake should be big enough to give Renault considerable management control and small enough to avoid consolidating the Japanese group's heavy debt load. Under Japanese corporate law, a 33.4 per cent holding gives a shareholder veto power on the board of directors. Nissan has been under pressure to find new sources of funding to reduce its debt load. Talks between the company and Daimler Chrysler collapsed last week.

For Renault, a tie-up would mark a giant step in attempts to make the group more international. Last year, only 330,000 of its record 2.13 million car and light commercial vehicle sales came outside western Europe.

People familiar with the plans said a deal would include a direct investment by Renault in Nissan Diesel, Nissan's 39.8 per cent-owned truck and engine unit, but that this would account for a "very limited amount of money".

Nissan is being advised by Salomon Smith Barney and Renault by Merrill Lynch.

Renault had become the sole declared contender for an alliance with Nissan after DaimlerChrsyler broke off talks. Together, the two would be the world's fourth-largest group in output, ahead of Volkswagen and DaimlerChrysler and behind General Motors, Ford and Toyota.