FCA withdraws Renault merger offer – who’s to blame?

Fiat Chrysler Automobiles (FCA) has withdrawn its offer to Renault for a merger. The Italian-American company said “the political conditions in France do not currently exist for such a combination to proceed successfully.” The reason why “political conditions” is an issue is because the French government owns a majority 15% stake in Renault.

According to Reuters, quoting sources familiar with the talks, the French government had welcomed the merger plan, but overplayed its hand by pushing for a series of guarantees and concessions that eventually exhausted the patience of FCA. After FCA decided to back away on Wednesday, a French official called FCA chairman John Elkann early on Thursday to see if he might reconsider coming back to the table, but was rebuffed.

It was previously reported that FCA was willing to offer concessions including a Renault special dividend, stronger job guarantees, headquarters in France and a board seat for the French government, in a bid to persuade Renault’s main shareholder.

France has since tried to deflect blame. French finance minister Bruno Le Maire said that his side had engaged constructively, but had not been prepared to back a deal without the endorsement of Renault’s current alliance partner Nissan, which has been cited as a potential hurdle since day one.

“An agreement had been reached on three of the four conditions. What remained to be obtained was the explicit support of Nissan,” Le Maire said. France’s four conditions were respecting Renault’s existing alliance with Nissan, keeping jobs in France, forming a balanced corporate governance structure between Renault and Fiat, and ensuring the new company commit to developing electric batteries along with Germany.

It has been reported that Nissan – which is majority 43% owned by Renault and had recently rebuffed a full merger proposal from its French partner (claiming Alliance boss Carlos Ghosn in the process) – was blindsided by the FCA-Renault merger plan and said it would require a fundamental review of its relationship with Renault.

“How can we support the deal? We weren’t at the table, so we haven’t had time to evaluate its impact on Nissan and the alliance,” a Nissan management source told Reuters before the talks collapsed. Nissan had said it would abstain at a Renault board meeting to vote on the merger proposal.

Apparently, achieving the planned five billion euros in FCA-Renault synergies would depend partly on access to technology jointly owned by Nissan. FCA is weak in electric vehicle tech, while Renault-Nissan was one of the early backers of EVs.

Renault and Nissan have had their own problems of late, mostly due to the lopsided cross-shareholding – disgruntled Nissan is the larger of the two carmakers but owns just a 15% stake in Renault. Le Maire told AFP that the French government was ready to reduce its 15% stake in Renault in the interest of bolstering the automaker’s alliance with Nissan.

“We can reduce the state’s stake in Renault’s capital. This is not a problem as long as, at the end of the process, we have a more solid auto sector and a more solid alliance between the two great car manufacturers Nissan and Renault,” he told the news agency.

“Looking at the past 20 years, we see that this quality of Renault has been reinforced by its partnership with Nissan. Therefore it is essential not only to preserve, but to strengthen this alliance. That has always been the strategy of the state and it remains the strategy of the state as shareholder,” the minister told reporters last week in Fukuoka after a meeting of G20 finance ministers.

Meanwhile, merger-hungry FCA will look elsewhere for a partner. “The decision to engage in these discussions with Groupe Renault was the right one and one we took after much preparation on many fronts,” chairman Elkann wrote in a letter to staff following the collapse of talks.

He said the decision to end the talks aimed to protect the interests of the company, its employees and stakeholders once it had become clear that the discussions had been taken “as far as they can reasonably go.”

“FCA, under Mike Manley’s leadership, is an outstanding business… with a clear strategy for a strong, independent future. We will continue to be open to opportunities of all kinds that offer the possibility to enhance and accelerate the delivery of that strategy and the creation of value,” he wrote.

Had it happened, a joint FCA-Renault would be only behind Toyota and the Volkswagen Group in terms of global car sales. Include Nissan and Mitsubishi, and combined sales will be by far the largest in the industry. On FCA’s side, besides the two namesake brands, its other marques include Abarth, Alfa Romeo, Dodge, Jeep, Lancia, Maserati and Ram Trucks. Ferrari was spun-off the group in 2015.

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