An audacious plan for a tie-up between General Motors Corp and Renault that would create a $100 billion global auto giant was set to come before the board of the French carmaker late on Monday.
GM's most high-profile investor, billionaire Kirk Kerkorian, urged the U.S. company last week to consider a three-way partnership with Renault and its partner Nissan.
Renault and Nissan Chief Executive Carlos Ghosn has said the board and management of GM would need to fully support the project before any study of the plan could take place.
Nissan said after its board meeting that its directors had approved exploratory talks and charged Ghosn with leading the discussions.
A tie-up would put the Brazilian-born French executive of Lebanese parents at the helm of a global auto group that will be breathing down the neck of Japan's Toyota, which has a market value of some $190 billion.
But analysts doubted that the deal would benefit Renault, which has a controlling 44 percent stake in Nissan, because of the risk involved just as the French company has embarked on a recovery plan drawn up by Ghosn after he turned around Nissan.
Ghosn has expressed interest in acquiring a stake of up to 20 percent in the world's largest automaker at a dinner several days ago with Kerkorian, a source familiar with the situation said on Friday. Kerkorian owns 9.9 percent of GM.
GM shares rose as much as 8.56 percent on Friday on Kerkorian's proposal and prospects of a speedier turnaround at the struggling U.S. automaker. Analysts estimate the stake could cost Renault about 2.6 billion euros ($3.32 billion).
Renault already owns the Romanian Dacia brand and has a stake in Samsung Motors of Korea. GM is the maker of Cadillac, Corvette, Saab, Hummer, Opel/Vauxhall and Chevrolet cars.
Renault shares gave back earlier gains to trade 0.24 percent down at 83.80 euros at 1224 GMT in a marginally weaker Paris bourse.
We struggle to see short-to medium-term synergies for both sides, Dresdner Kleinwort credit analyst Christophe Boulanger said in a note to clients on Monday.
Boulanger said a 10 percent GM stake would cost Renault about 1.3 billion euros ($1.66 billion), which would likely trigger at least a one-notch credit rating cut to the BBB level with all three rating agencies, and a potential negative outlook given the challenges to make a three-way partnership work.
The cost of insuring Renault's debt against default rose on Monday, reflecting the worries about the impact of any deal on Renault's credit rating.
CM-CIC Securities analyst Pierre-Yves Quemener said Renault could easily finance such a stake but added the gains of a three-way tie-up for Renault were limited.
We would like to simply stress that the challenges could offset the advantages in a period where Renault is restructuring, Quemener said.
The Kerkorian suggestion about a GM stake came after media speculation that Ford had wanted Ghosn to jump ship.
At UBS, an analyst said that while a tie-up with GM would give the alliance the much discussed third leg, it would also create problems.
Renault-Nissan already has all of the purchasing and engineering scale it can possibly use. Investing in GM would see management distracted for years. GM faces a difficult legacy, labor, brand and distribution challenges that may not be solved by target-setting management, UBS said, adding that the 2.6 billion euros needed to buy 20 percent in GM could be financed by Renault itself if it sold its stake in truck maker Volvo.
Bruno Lapierre of CA Cheuvreux said a tie-up would work against the interests of Renault shareholders for the next three years at least.
Renault is at the start of an ambitious plan that requires many cultural changes within the group and dearly needs Mr Ghosn's management expertise in this process, he said.