Italian-American carmaker Fiat Chrysler on Thursday withdrew its blockbuster proposal to merge with Renault, blaming political objections in Paris and sparking a war of words with French officials.
Fiat Chrysler (FCA) had stunned the markets last week by proposing a “merger of equals” with the French group that would create an auto giant spanning the globe, encompassing Renault’s Japanese partners Nissan and Mitsubishi Motors.
The French government, which controls 15 percent of Renault, gave it a conditional green light but also warned against “haste”. It was said by analysts to have been pressing for more control over the new firm alongside Fiat’s Agnelli family.
In a statement issued after a board meeting Wednesday evening, FCA said it “remains firmly convinced of the compelling, transformational rationale” of its proposal, which it said was “carefully balanced to deliver substantial benefits to all parties”.
“However it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully,” it added.
Renault, whose longstanding alliance with Nissan is in trouble after the arrest of their joint boss Carlos Ghosn, expressed its “disappointment”.
“We view the (Fiat) opportunity as timely, having compelling industrial logic and great financial merit, and which would result in a European-based global auto powerhouse,” it said in a statement.
“Further, we believe it emphasises the attractiveness of Renault and of the (Nissan/Mitsubishi) Alliance.”
A combined mega-group including Nissan and Mitsubishi would have been by far the world’s biggest, selling 15 million vehicles and surpassing Volkswagen and Toyota, which sell around 10.6 million each.
Shares in Renault plunged by more than seven percent in trades approaching the market closing in Paris. In Milan, FCA shares initially slid but then recovered somewhat to be down 0.5 percent.
Nissan holds key
Industry experts did not rule out a revival of the merger discussions, despite the verbal sparring that erupted after FCA’s announcement.
“The collapse of the proposed Fiat Chrysler/Renault merger leaves both firms exposed to the shifting dynamics of a sector at a crossroads,” Ilana Elbim, credit analyst for Hermes Investment Management, said in a note.
Pointing to falling sales volumes in major auto markets, she said “mega-mergers designed to save on capital expenditures remain inevitable”.
Renault’s board had said on Tuesday that it was studying “with interest” the FCA offer but held off on granting approval pending further deliberations.
On Wednesday, all Renault directors favoured the merger, apart from an employee’s representative affiliated with the powerful CGT union and two from Nissan who abstained, a source close to Renault said.
The two Nissan directors were said to have asked for more time to approve the deal. There was no official comment from Nissan headquarters in Tokyo.
Relations in the partnership have been under strain since the arrest in November of Ghosn, who awaits trial in Japan on charges of financial misconduct.
French Finance Minister Bruno Le Maire had set conditions for the FCA tie-up, including no plant closures and that the Renault-Nissan alliance be preserved.
The Renault source said Le Maire had asked for another board meeting next Tuesday after he returns from a trip to Japan where he was to discuss the proposal with his Japanese counterpart at a meeting of G20 finance ministers.
A source close to FCA blamed the “sudden and incomprehensible” objections of Le Maire’s ministry for causing the deal to collapse.
Italian Deputy Prime Minister Luigi Di Maio said: “When politics tries to intervene in economic procedures, they don’t always behave correctly, I don’t want to say any more.”
But Le Maire stressed that of his conditions for the FCA alliance, only the explicit approval of Nissan remained to be secured, while aides denied that the ministry had played politics with the deal.
A source close to the finance ministry said the French government “regrets the hasty decision of FCA”.
“Despite significant progress, a short delay was still necessary so that all conditions set by the state could be met.”
Le Maire indicated the French government was amenable to changes at Renault despite FCA’s screeching U-turn.
“We remain open to the prospect of industrial consolidation, but once again, in calmness, without haste, to guarantee the industrial interests of Renault and the industrial interests of the French nation,” he told the French parliament.