Renault and its Japanese subsidiary Nissan announced a big step in the Russian market on Thursday, heading for control of the Lada brand to become the third-biggest auto force in the world.
The move by Renault Nissan to control Russian auto group Avtovaz, costing 750 million dollars, highlights the importance of the Russian market, the third biggest for the three manufacturers, after China and the United States.
Renault, which controls Nissan, will take control of Avtovaz by stages, the companies said, but the outline deal is subject to an audit of Avtovaz and its Lada operations.
Since 2008 Renault has owned 25 percent of Avtovaz. The deal, organised via a new joint holding company, will cost Renault 300 million dollars ($227.3 million). Nissan, which will not own any of the capital, will provide 450 million dollars.
The chief executive of Renault Nissan Carlos Ghosn said: "The agreement reached today marks an extra step in a process of increasing broad collaboration, which is contributing to the modernisation of the leading firm in the Russian automobile industry."
He said that "Renault and Nissan are going to pursue transfers of technology towards Russian factories, while our Russian colleagues will be increasingly present in the multi-cultural management of the alliance."
The deal, under negotiation for months, will make Renault-Nissan-Avtovaz the third-biggest auto group in the world.
The statement said that the total sales of cars and commercial vehicles in Russia, across all brands, amounted to 2.65 million vehicles in 2011 and was expected to rise to 2.9 million in 2012.
Renault Nissan and Avtovaz accounted for 878,990 of this total, and of their production 578,387 vehicles bore the Lada brand.
This means that for the alliance, Russian was the third-biggest market after China and the United States.
Avtovaz owns one of the biggest car factories in the world at Togliatti, a town on the banks of the Volga River about 1,000 kilometres from Moscow where the company has its headquarters.
It wants to raise production to nearly 1.4 million vehicles per year by 2015.
Under an agreement with Russian state group Russian Technologies and investment bank Troika Dialog, Renault Nissan will end up owning 67.13 percent of a holding company.
The rest of this holding venture will be owned by Russia Technologies.
The holding company will in turn own 74.5 percent of Avtovaz and the rest will be quoted on the stock market.
The holding venture will buy 20 percent of Avtovaz owned by Troika Dialog by 2014, the statement said but did not say how much would be paid for this stake.
Debt owed by Avtovaz will be restructured by Russian Technologies which will then receive money raised from the expected sale of non-strategic assets owned by Avtovaz.
Outstanding, interest-free loans, with long maturities, would then amount to about 1.56 billion euros.
As a result of these measures, Avtovaz would emerge with a strong balance sheet and without any financing problems.