An announcement of the tie-up could come as early as this morning following a meeting of the Renault board in Paris to sanction the deal, the first major investment in a Japanese motor manufacturer by a European rival.
The tie-up between Renault and Nissan is the latest in a series of mega- mergers in the motor industry and would create the world's fourth-biggest car-maker with sales of just over 4 million vehicles, putting it a shade ahead of Volkswagen and DaimlerChrysler.
The deal is expected to be funded through an issue of new Renault shares. But the French government, which still holds a 44 per cent stake in Renault, would also release some of its residual shares to the Japanese company, mostly for cosmetic reasons.
This would allow Nissan to present the deal as a two-way industrial partnership, not a rescue, as it more properly is.
Last night sources in Japan were insisting that the alliance be viewed as a "a partnership of equals" although it was being said in Paris that the deal would give Renault effective management control, with three seats on the board and a veto over all strategic decisions.
Industry observers said the alliance would be a good strategic fit, however. Nissan is strong in Japan and the US, where Renault has little or no presence, while the French car-maker is a dominant player in Europe, particularly the utility vehicle market, where Nissan has traditionally been weaker.
Nissan's president, Yoshikazu Hanawa, yesterday briefed the Nissan board on the details of the deal, having flown to Paris at the weekend for talks with Renault's chairman, Louis Schweitzer, to try to clinch the agreement following the collapse of merger talks with DaimlerChrsyler.
The talks are thought to have foundered because of Nissan's colossal debts, which total $36bn. But by restricting its stake to under 40 per cent, Renault could class Nissan as an associate company and thereby keep the debts off its own balance sheet.
Yesterday Nissan's stock surged 13 per cent, to close at 454 yen (240p), as dealers prepared for an announcement. "We are considering the possibility of a tie-up with the French company Renault, but we have not received a formal offer," the Japanese firm said in a statement.
The Renault-Nissan alliance is expected to focus initially on joint purchasing and component sharing. But eventually it could extend to model development, using common platforms and shared production.
The Japanese firm could take advantage of Renault's production plants in Argentina and Brazil.
But Renault would be buying into a financially troubled company. In the past year Nissan has struggled to cope with Japan's worst postwar recession and a collapse in demand across its vital Asian market. It has warned it will suffer a 30 billion yen (pounds 158m) group net loss in the financial year ending this month.
Nissan's debts in March last year stood at 2,500 billion yen (pounds 13 billion), a concern which prompted the US ratings agency Moody's to cut Nissan's senior debt rating to junk bond last week.
Nissan, like many Japanese firms, is reluctant to open its boardroom doors to foreigners. "The basic issue is of a proud management wanting to preserve its own position," said Christopher Richter, auto analyst at HSBC Securities in Tokyo.
"It would be an admission of failure to give up control and a bitter pill to swallow," he said.
The Japanese press said on Monday that Renault wanted three seats on the board and wanted to make one of its executives vice-president.
Speculation in France is that Renault might use the Nissan partnership to try to launch its successful designs - the Twingo, the Clio and the Scenic version of the Megane - on the American and Asian markets, exploiting Nissan's spare production capacity in North America. Beyond that, it could build successful Nissan 4X4 designs - something missing from the Renault range - in French plants.
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