Renault sell-off should raise at least pounds 2bn: Privatisation after French car maker's merger with Volvo will place 40% with institutions

THE PRIVATISATION of Renault following its merger with Volvo of Sweden is expected to raise at least pounds 2bn and leave up to 40 per cent of the combined company in the hands of French institutions and industrial groupings.

It is now thought that the merger of the two car manufacturers could take place as early as July or August, once the French parliament has passed a bill abolishing the law limiting private ownership of Renault to 25 per cent.

This would be followed by a placing of up to 40 per cent of the new company in the hands of sympathetic French investors and a public flotation early next year targeted at the French market but including an international element.

According to sources close to Renault, the two companies have been working flat out to agree on the terms of a merger so that the button can be pressed as soon as the French government has decided in which order to sell the 21 state companies identified as privatisation candidates last month.

A merger of the two companies would create a grouping with worldwide sales of 2.12 million cars and light utility vehicles worth pounds 25bn, and more than 100,000 employees.

The French daily Liberation reported earlier this month that the French would emerge with control of two-thirds of the merged company with Volvo taking the rest.

Pehr Gyllenhammar, Volvo's chairman, would switch to being chairman of the new merged company while Louis Schweitzer, the Renault chairman, would be appointed chief executive.

Once the sale of the company gets under way, about 30 per cent of the shares could be allocated to the public offer - aimed mainly at private French investors. Supposing a 40 per cent stake had already been placed with institutions, this would leave the remaining 30 per cent with Renault and Volvo.

The existing cross-shareholding arrangement between Renault and Volvo is already resulting in extensive collaboration on product development and component sourcing.

The replacements for the Renault Safrane and Volvo 850 executive cars, due to be launched towards the end of this decade, will have a common platform and engine while the replacement for the Renault 21, which goes on sale next April, will have a Volvo engine.

Although the two marques are still marketed separately, Renault and Volvo have also combined some of their sales operations in France and in Germany and nordic countries.

There appears to be little now in the way of a full-scale merger with French political objections out of the way.

However, the timing of the privatisation is likely to hinge ultimately on the performance of the European car market, now deep in recession.

Mr Schweitzer said recently that the company would make a profit this year provided the west European car market did not dip by more than 15- 20 per cent.

Sales fell 19 per cent in May, year on year, and by 18 per cent in the first five months of the year. Some industry analysts believe the European market could deteriorate further given the collapse of demand in Germany and, to a lesser extent, France.

Britain is one of the few European car markets to show an upturn this year, with sales in the first five months up 9 per cent on the same period in 1992.

Renault has increased its UK sales by 27 per cent this year, bolstered by strong sales of the Clio, but it still has only 5.3 per cent of the market.

The company is expected to decide this week whether to begin producing a right-hand drive version of its new Twingo model, launched at last autumn's Paris Motor Show.

But even if Renault goes ahead, the Twingo would not be seen on British roads for 18 months.