Renault and Peugeot-Citroën appear to be engaged in a Formula 1 race for the top stock market trophy. Shares of both French car manufacturers have been rising steadily during the past few months. Indeed, Renault’s shares this week hit their highest level since the former state-owned company first came to the market in 1994.
But what lies behind this impressive if somewhat surprising performance? It is certainly not significantly improved results. Both car groups are still losing market share in Europe and their sales have been stalled. Both are also engaged in delicate restructuring – so delicate that there have been allegations that workplace stress may have contributed to recent suicides of some employees at both companies. Despite these tragic events and lacklustre performance, the financial markets are apparently buying the recovery stories being peddled by the two companies’ celebrity managers.
Carlos Ghosn of Renault this week once again confirmed his optimism and longer-term performance targets. Renault has now unveiled two of the 26 new models it plans to launch over the next three years to recoup ground it has lost to its rivals.
At Peugeot-Citroën, new chief executive Christian Streiff is soon due to unveil the Peugeot 308 hatchback, which is also supposed to revive flagging sales.
In the case of Renault, the new small Twingo was unveiled last week. But investors apparently failed to notice that behind all the marketing fanfare, Renault has actually scaled back its sales ambitions for the new car. Surely this is an admission that one of the company’s most popular products is facing increasingly tough competition. After all, the resurrected Fiat is about to re-launch its trailblazing Fiat 500 next month, while Japanese and German producers have continued to make inroads in the small car market.
Investors appear to be betting that things cannot get worse at Renault and Peugeot and that new products and restructuring will lift their performance. But at this stage, investors can only count on the encouraging words of Messrs Ghosn and Streiff. Much rests on the shoulders of these two top managers, but it is still far too early to say with any conviction that they will be successful.
Eon’s bête noire
Germany’s Eon could be forgiven for becoming paranoid over its shoot-outs with Italy’s Enel for European energy assets. The Italian utility Wednesday clinched a 25 per cent chunk of Russia’s OGC-5 power generating company by outbidding Eon.
After losing out to Enel in the drawn-out battle for Spain’s Endesa, Eon was clearly hoping to return the compliment to the Italians in another hotly-contested energy market. For Fulvio Conti, Enel’s boss, the latest Russian deal is a boost in his strategy of expanding his company’s footprint across Europe. But one large part of the European jigsaw is still missing: France.
Yet with the apparent rapprochement between France’s new president Nicolas Sarkozy and Italy’s Romano Prodi, perhaps even France is no longer beyond reach. No doubt it will present Mr Conti with another opportunity to cross swords with his German rival. Eon has made no secret of its own interest in moving into France.
Just as some European leaders (namely Germany’s Angela Merkel and France’s Nicolas Sarkozy) will seek at this week’s G8 summit to clip the wings of activist hedge funds and private equity firms, the Organisation for Economic Co-operation and Development has rallied to the support of the so-called “locusts”.
The rich man’s club of leading industrial nations has completed an exhaustive study of private equity and hedge funds. Its conclusion is that they are good for corporate governance by putting pressure on their targeted companies to make best use of their assets. Indeed, their targets are generally companies lacking a credible long-term strategy. The OECD also argues that company performance appears to improve under private equity and the intervention of private equity firms and activist hedge fund investors does not seem to have had a negative impact on jobs.
That said, the study agrees that hedge funds and private equity firms need to become more transparent. Some practices require careful monitoring to prevent blatant cases of conflicts of interest, possible insider trading and other malpractices. Yet the Paris-based body does not believe that a special set of corporate governance principles should be drawn up to regulate activist funds and private equity firms.