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Fiat Chrysler withdraws Renault merger offer

Fiat Chrysler withdrew a $35 billion merger offer for France’s Renault, abruptly calling off what would have been a landmark deal to create the world’s third-biggest automaker.

Renault directors failed to reach a verdict on FCA’s May 27 merger proposal at a board meeting that ran late Wednesday, the company said. The board 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 meeting,” Renault said in a statement.

Renault said it would continue to review the proposal “with interest.”

In its own statement, Fiat Chrysler took direct aim at the French government, owner of a 15 percent stake in Renault, for scuppering a deal. “It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully,” Fiat said, adding that it remains convinced that the plan was compelling and carefully balanced.

As Renault board members met in Paris Wednesday evening, it appeared that Renault Chairman Jean-Dominique Senard, Fiat Chrysler Chairman John Elkann and representatives of the French government led by finance minister Bruno Le Maire had ironed out most of their differences.

The French government had pushed for more control over the merged company going forward, according to people familiar with the situation, while Fiat Chrysler’s controlling shareholder, representing descendants of Gianni Agnelli, had sought to defend the valuation assigned to their company and the potential cost savings.

Nissan had signaled that its representatives would abstain. But during the meeting, French government representatives sought to persuade Nissan to endorse the deal. The meeting was held up three times for consultations, people familiar with the events said.

Fiat Chrysler had also become increasingly aware of the pitfalls of pursuing a Renault merger without its larger alliance partner’s buy-in. “Nissan needs to be in the loop,” an FCA source told Reuters shortly before the deal fell apart.

When it came to a vote, the Nissan representatives abstained, the leftist CGT union voted against, and all other directors voted for it. When it was the French state representatives’ turn to vote, they insisted that the vote be postponed, people familiar with the events said.

France’s lead representative on the board, Martin Vial, said finance minister Le Maire would hold talks with his Japanese counterparts over the weekend and in Tokyo on Monday, after the G20 summit, and a vote could then take place on Tuesday.

Senard requested that Fiat Chrysler grant a delay. Instead, Fiat Chrysler quickly rejected the request, a person familiar with the events said.

On the French side, Fiat Chrysler was seen as being in too great a hurry to lock down the deal. French officials, however, signaled they saw no need to rush.

The opposition from Nissan representatives raised doubts about the Japanese automaker’s commitment to preserving the alliance if the merger were to proceed.

FCA said it remains “firmly convinced of the compelling, transformational rationale of a proposal that has been widely appreciated since it was submitted, the structure and terms of which were carefully balanced to deliver substantial benefits to all parties.”

Le Maire said on Thursday that the French government met only three out of its four conditions, having failed to win the support of Renault’s partner, Nissan. Le Maire said the French state had engaged constructively with all partners in the negotiations.

“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 in a statement.

On Monday, Nissan CEO Hiroto Saikawa said that the proposed merger, if realized, would significantly alter the structure of Renault. “This would require a fundamental review of the existing relationship between Nissan and Renault,” Saikawa said.

The French state had been seeking more influence over the merged company, firmer job guarantees and improved terms for Renault shareholders in return for blessing the tie-up.

Analysts had warned of complications with the deal, including Renault’s existing alliance with Nissan, the French state’s role as Renault’s largest shareholder and potential opposition from politicians and workers to any cutbacks.

France had broadly welcomed the deal, on condition it guarantees Renault’s domestic blue-collar jobs and plants.

Leadership questions

The collapse of his merger-of-equals proposal marks a significant retreat for FCA’s John Elkann. After discussions with Renault’s cross-town rival PSA Group, Elkann opted for the riskier path, proceeding with an offer for Renault despite the complications of the government’s role and its strained relationship with alliance partner Nissan.

Fiat Chrysler’s decision to walk away is a defeat for Renault’s Senard, former head of tire maker Michelin. He invested heavily in the proposal to merge and traveled to Japan last week to make the case personally to executives of Nissan and third alliance partner Mitsubishi that a merged Renault-Fiat Chrysler could work closely with them as well. Senard, 66, was due to be CEO of the combined company.
In addition to the demands from the French state, unions were worried about jobs and Nissan felt burned by the previous regime under deposed alliance Chairman Carlos Ghosn.
Criticism of FCA’s merger proposal has gathered steam in recent days.

Paris-based activist investment manager CIAM, in a letter to Renault’s board, said the merger with Fiat significantly undervalues Renault and that a 2.5 billion-euro ($2.8 billion) dividend set to go to Fiat Chrysler shareholders should instead be paid to the French company.

FCA had proposed that its shareholders receive a 2.5 billion-euro ($2.8 billion) special dividend as part of the merger, had it been completed.

The two companies told investors a merger would cut operating costs and investments by 5 billion euros or more a year. Fiat Chrysler stood to gain access to Renault’s superior electric drive technology to meet mandates for zero-emission cars. Renault would have had a share of the Italian-American company’s lucrative Jeep SUV and RAM pickup truck franchises.

It is not clear what the two companies will do next to tackle the costs of far-reaching technological and regulatory changes.

Fiat Chrysler said it “will continue to deliver on its commitments through the implementation of its independent strategy.”

 

6.June 2019