Renault is selling a $1.4 billion interest in Daimler. Why was the Great Timing

Renault sold its equity in German competitor Daimler for €1.14 billion ($1.4 billion) on Wednesday, in the light of a larger tactical decision from the French car manufacturer to concentrate on growing sustainability after significant losses in 2020. Holdings of Daimler, which controls brands like Mercedes-Benz, dropped by about 2.6 percent in the Frankfurt trade, while Renault’s shares rose above the level in Paris. Renault and Daimler have had a partnership since 2010 when the former CEOs of both firms joined forces to trade technologies and production efficiency. The automotive alliance featured Renault’s geopolitical ally Nissan, as well as shared ownership stakes by the French and German automobile pioneers. Renault unveiled a revised financial strategy after a considerably larger €8 billion ($9.5 billion) loss in 2020, primarily due to a drop in revenue during the Covid-19 pandemic. The three-phase “Renaulution” program seeks to turn the company’s emphasis away from sales volume and toward profitability. The first phase of the program, which is expected to be finished by 2023, entails increasing margins and restoring cash flow. As per the French automaker, this would pave the way for expanded model lineups as well as a shift toward emerging technologies and resources, including electric cars, in the coming years. Renault reported on Friday that it had completed the selling of its whole Daimler ownership stake, netting €1.14 billion from approximately 16.5 million shares exchanged at €69.50 each. Based on the share price at the close on Thursday, the sale constitutes 1.54 percent of Daimler’s share capital traded at an approximately 4% discount. The proceeds of the sales would allow Renault to “speed up the fiscal devaluation of its automotive operation,” which is in accordance with the firm’s restructuring efforts, according to the board. The industrial relationship among Renault and Daimler may not be affected by the share sale, according to the French company. Renault’s decision to sell its Daimler stake comes on the heels of the company’s intention to refocus and raise more capital, and it couldn’t have happened at a better time. The stock of Daimler has grown by more than 20% this year and by 175 percent in the last year. Daimler’s stock dropped as a result of the news, but investors must not view the Renault departure as a vote of no confidence. Daimler has its own profit-boosting policy that relies on Mercedes-Benz premium vehicles, and concerns arise about the importance of the Renault-Daimler relationship as both firms look to a more high-tech, electric automobile-oriented future.

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