Fiat Chrysler pulls plug on €33bn Renault merger

Fiat Chrysler Automobiles has withdrawn its proposal for a €33 billion merger with France's Renault, reversing plans to create what could have been the world's third-largest carmaker.

Fiat said in a statement that it “remains firmly convinced of the compelling, transformational rationale” but it had “become clear that the political conditions in France do not currently exist for such a combination to proceed successfully”.

The decision came after Renault’s board for the second time pushed back a decision on whether to engage with the all-stock proposal, saying the French government, its largest shareholder with a 15 per cent stake, had requested the delay.

After more than six hours of discussion on Wednesday evening at Renault’s headquarters in Paris, the French carmaker said it “was unable to take a decision due to the request expressed by the representatives of the French state to postpone the vote to a later council”.

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A person close to Renault said Fiat’s decision to pull the proposal was understandable given the reluctance of the French government to engage in meaningful talks. The French state “pulled the elastic until it broke”, the person said.

On Wednesday morning, speaking on French television station BFMTV, finance minister Bruno Le Maire said "we should take our time to make sure that things are done well". He added that he wanted guarantees on corporate governance, jobs and an operational headquarters for the new group in France.

Fiat told Renault of its intention to withdraw the merger proposal less than an hour after the French carmaker communicated the outcome of its board meeting.

‘Transformative’

New York-listed shares of Fiat Chrysler dropped 3.3 per cent in late after-hours Wednesday trading. Shares in Japan's Nissan, the second-biggest shareholder in Renault, fell as much as 3.6 per cent in early Tokyo trading on Thursday but bounced back to sit down 1.3 per cent by late morning.

The proposal for a "transformative merger" would have seen Fiat and Renault each own 50 per cent of the business, which would have combined sales of 8.7 million vehicles a year – larger than General Motors and third-biggest carmakers worldwide behind Volkswagen and Toyota.

People briefed on the decision said the French state and a union representative were the only Renault board members who did not vote for the deal. Representatives of Nissan abstained.

There was acrimony on all sides after the developments.

People close to Nissan said that they were not “hugely surprised” at Fiat’s decision, given recent signals. The Japanese company, which through its 19-year alliance with Renault has a long experience of engagement with the French state, privately predicted that Fiat’s proposal would generate friction.

These people added that a further factor in Fiat’s withdrawal may have been intensifying discussion over the effect a merger would have on the agreement that binds Nissan and Renault in their alliance.

Government shocked

The French government said it had been shocked by the speed of Fiat’s decision to withdraw. It had asked for the decision to be delayed by roughly a week in order to allow the government to speak directly to Nissan about the merger, said several people familiar with the matter.

According to a senior government official, France wanted to make sure that Nissan was on board with the planned merger, a condition that it had made clear from the start of the process. Mr Le Maire is due to travel to Japan early next week.

“Nissan explained they intended to abstain if a vote took place tonight,” said another person close to the French government. “We said to take a bit more time and take the opportunity of [the] visit of [Mr Le Maire] to Japan ... to pursue discussions. And then vote on Tuesday. But FCA decided a few minutes later to retract the offer.”

The person added: “In our view, there was no good reason to act in such a precipitous way ... There was a tentative agreement on the whole package between FCA and Renault including [the] government.”

"There weren't the political conditions to go ahead" with a merger, said a person close to Fiat's chairman, John Elkann.

Another person close to Fiat said: “They are trying to blame Nissan, but as far as we were aware there was no issue with Nissan. We think the French government was using this as an excuse.” – Copyright The Financial Times Limited 2019