France on defensive after Fiat Chrysler slams brakes on proposed merger with Renault

06 Jun 2019 / 22:23 H.

PARIS/MILAN: France was battling to defend its business strategy today after being blamed for scuppering a US$35 billion-plus (RM146 billion-plus) merger between carmakers Fiat Chrysler (FCA) and Renault only 10 days after the plan was officially announced.

Shares in Italian-American FCA and France’s Renault fell sharply in early trade after FCA pulled out, saying “the 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 a series of guarantees and concessions that eventually exhausted the patience of FCA, sources familiar with the talks said.

Wrong-footed by FCA’s decision to with-draw its merger proposal late on Wednesday, a French official called FCA chairman John Elkann early today to see if he might reconsider, but was rebuffed, one of the sources said.

French Finance Minister Bruno Le Maire said today 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 had aimed to achieve €5 billion (RM23.5 billion) in annual synergies, with FCA gaining access to Renault’s superior electric drive technology and the French firm getting a share of FCA’s lucrative Jeep and RAM brands. Achieving the planned €5 billion in FCA-Renault synergies would depend partly on access to technology jointly owned by Nissan, executives had said.

However, a source close to FCA played down the significance of Nissan’s stance in the discussions and blamed the French government for succumbing to political pressure at home.

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

French Budget Minister Gerald Darmanin told FranceInfo radio the door should not be closed on the possibility of a deal with Renault, adding Paris would be happy to re-examine any new proposal from FCA.

Renault said in a statement it was disappointed not to be able to pursue the merger, but that FCA’s interest highlighted the attractiveness of the company and its alliance with Nissan.

Nissan, which is 43% owned by Renault and has 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.

The collapse of the FCA-Renault deal also followed days of bickering between France and Italy over Paris' 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 5-Star leader Luigi Di Maio told Italian state radio today.

At 1210 GMT, 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 was up €1.9%, as some analysts speculated it could again be targeted by FCA.

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