December 7, 2021

Transparency into good deal structures is essential for making smart investments. The alleged crimes of Carlos Ghosn, who led the Renault-Nissan-Mitsubishi alliance, demonstrate the tremendous destructive value that happens when investors underestimate the true exposure they have to complicated / delicate business deal structures.

Ghosn stands accused of underreporting his income and taxable perks to Japanese authorities. This is a stunning fall from grace for a once extremely popular and respected business leader in Japan, and many suspect his arrest has more to do with a coup within Nissan than tax dodging.

The Renault-Nissan-Mitsubishi alliance he led is a tangled web of partnerships, minority stakes, and controlling interests. In theory, these three companies together formed the largest automobile manufacturing interest in the world. But in reality, they never truly integrated, and different parts of the alliance serve different masters.

The conflicting priorities of three sets of shareholders plus the French and Japanese governments made this company an ungainly beast. Nissan and Mitsubishi loom large in the Japanese economy, but Paris-based Renault was taking increasing control of the alliance. It makes sense that factions in Japan would prefer to break up the alliance to maintain their power. This kind of factional infighting is terrible for shareholders.

Transparency is critical for understanding the strategies we’re buying into and how much we’re paying for them. At Alliance, we are always careful to ensure that our deal structures are smart. Even when simplicity is not an option, it’s essential to ensure that everybody has the right incentives. A good structure should make sure nobody ever gains from undermining the deal. And in the event of a surprise, the right structure also makes investors resilient to problems, including a bad-actor. Renault-Nissan-Mitsubishi seems to have missed this important point. It has been a disaster waiting to happen, and it’s a cautionary tale for us all.

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