Analysts cast doubts over Renault Fiat (FCAU, $14.81) merger, Fiat shares surge

Shares of automobile giant, Fiat Chrysler rose more than 3% on Wednesday following merger talks with French carmaker Renault, amidst analysts’ skepticism.

Analysts are of the opinion that Fiat is a potential acquisition target for Renault, but only after the latter settles its recent disagreements with the Japanese car maker Nissan, its long-standing business associate. Analysts also believe that a merger between Fiat and Renault would take time to materialize as it is just half-baked now and seems too far-fetched, and the resulting company could be unmanageable.

Renault too would like to first settle its disputes with Nissan over allegations of Renault’s former leader’s financial misconduct before going after Fiat. On the other hand, one other automaker has expressed interest in acquiring Fiat Chrysler and that the company’s controlling owners, the Agnelli family’s interest in the deal suggests the automaker is a potential target.

But analysts believe that it is unlikely that the disputes between Renault and Nissan will be settled any time soon.

The history of the automotive industry has ample evidence of dysfunctional mergers. If the alliance between Renault, Nissan, and Mitsubishi break up, Renault would probably be a better candidate for a merger with Fiat Chrysler which seems more likely than a Renault-Nissan merger. Alternatively, analysts believe that a merger between Fiat Chrysler and French automaker Groupe PSA could be a better fit.