French finance minister Bruno le Maire. Picture: KRISZTIAN BOCSI/BLOOMBERG
French finance minister Bruno le Maire. Picture: KRISZTIAN BOCSI/BLOOMBERG

Paris/Milan — The French government was battling to defend its business strategy on Thursday after being blamed for scuppering a $35bn-plus merger between carmakers Fiat Chrysler (FCA) and Renault only 10 days after the plan was announced.

The share prices of Italian-American FCA and France’s Renault fell sharply in early trade after FCA pulled out of talks, saying “political conditions in France do not currently exist for such a combination to proceed successfully”.

The collapse of the deal, which would have created the world’s third-biggest carmaker behind Japan’s Toyota and Germany’s Volkswagen, revives questions about how both FCA and Renault will meet the challenges of costly investments in electric and self-driving cars on their own.

The French government, which has a 15% stake in Renault, had welcomed the merger plan, but overplayed its hand by pushing for guarantees and concessions that eventually exhausted the patience of FCA, said informed sources.

Fiat Chrysler Automobiles chair John Elkann. Picture: REUTERS/DENIS BALIBOUSE
Fiat Chrysler Automobiles chair John Elkann. Picture: REUTERS/DENIS BALIBOUSE

Wrong-footed by FCA’s decision to withdraw its merger proposal late on Wednesday, a French official called FCA chair John Elkann early on Thursday to ask if he might reconsider, but was rebuffed, said one source.

While France has a long history of government interference in business, President Emmanuel Macron came to power promising a broadly market-friendly agenda. The failure of the FCA deal risks leaving Renault locked into Europe’s stagnant mass market for cars, deterring other potential suitors, analysts said.

French finance minister Bruno Le Maire said on Thursday the government had engaged constructively, but had not been prepared to back a deal without the endorsement of Renault’s current alliance partner, Nissan.

Nissan had said it would abstain at a Renault board meeting to vote on the merger proposal.

The merger was aimed at achieving €5bn in annual synergies, with FCA accessing Renault’s superior electric drive technology and the French group getting a share of FCA’s lucrative Jeep and RAM brands.

Achieving the planned €5bn in FCA-Renault synergies would depend partly on access to technology jointly owned by Nissan, executives had said.

But a source close to FCA played down the significance of Nissan’s stance in the talks, blaming the French government for buckling to political pressure at home.

The FCA-Renault talks were conducted amid a French public outcry over 1,044 layoffs at a General Electric factory. The US group had promised to safeguard jobs there when it acquired France’s Alstom in 2015.

FCA has long been looking for a merger partner. Some analysts say its search for a deal is becoming more urgent as it is ill-prepared for tougher new emissions regulations. It previously held unsuccessful talks with Peugeot maker PSA Group, in which the French state also owns a stake.

French budget minister Gerald Darmanin said the door should not be closed on the possibility of a deal with Renault. Paris would be happy to re-examine any new proposal from FCA. “Talks could resume at some time in the future,” he said on FranceInfo radio.

But Evercore ISI analysts said the chances of a deal had “materially fallen”.

Renault said it was disappointed at not being able to pursue the merger, but FCA’s interest highlighted the attractiveness of the company and its alliance with Nissan.

The collapse of the deal could further fray relations between Renault and Nissan, already strained by the arrest and ouster of alliance chair Carlos Ghosn, who is now facing trial in Japan on financial misconduct charges. He denies any financial misconduct.

Nissan, which is 43% owned by Renault and recently rebuffed a full merger proposal from its French partner, was blindsided by the FCA-Renault tie-up plan and said it would require a fundamental review of its relationship with Renault.

“How can we support the deal?” said a Nissan management source soon before the talks collapsed. “We weren’t at the table, so we haven’t had time to evaluate its impact on Nissan and the alliance.”

The deal’s failure could also add to financial markets’ frustration with France.

“With FCA pulling its merger offer, one has to wonder how much the French state is set on limiting Renault’s strategic and valuation opportunities despite having only a 15% stake,” analysts at brokerage Jefferies wrote in a note to clients.

At 2.10pm in Paris Renault shares were down 6.3% at €52.67, while FCA shares in Milan had recovered early losses to trade up 0.1% at €11.79. PSA shares were up 1.9%, as some analysts speculated it could again be targeted by FCA.

But one banker who has worked on several FCA and car industry deals in the past said: “There are few alternatives available for FCA. I think they’ll try again with Renault.”

The collapse of the FCA-Renault deal also followed days of bickering between France and Italy over Paris’s demands.

“When politicians try to intervene in economic matters, it doesn’t always help. I won’t comment further. If FCA withdrew its offer it’s because it didn’t see an economic advantage or other type of advantage,” Deputy Prime Minister and Five-Star leader Luigi Di Maio told Italian state radio on Thursday.


Reuters