With the global auto sector sinking slowly into the worst contraction since the global financial crisis, a single ray of hope emerged one week ago when, out of the blue, Fiat Chrysler proposed a merger with French auto giant Renault, providing at least some support for the stocks of beleaguered auto makers. And then, as fast as the deal came it was gone, because late on Wednesday, Fiat withdrew its €33 billion merger proposal after the French state intervened, seeking to delay the deal in order to consult with the company's Japanese partner, Nissan.
How exactly the deal collapsed remains to be clarified, with Bloomberg reporting that Renault's board of directors was prepared to approve the preliminary agreement to combine the two car giants, while the Financial Times reports that Renault’s board had once delayed on whether to engage with the proposal, saying that the French government, its largest shareholder, has requested the vote be pushed back. The first attempt to pass the plan ended Tuesday night when Renault’s board adjourned without deciding on the Fiat proposal. It said it needed to study the draft in detail.
The FT reports that, according to its sources, the French state had asked for the decision to be delayed for the second time "by roughly one week in order to allow the government to speak directly to Nissan about the merger."
In the end, FCA decided to pull out after it emerged that the French government and unions were not convinced about the Italian-American company’s reassurances over job security at Renault.
And so, after more than six hours of discussion on Wednesday evening at Renault’s headquarters in Paris, the board 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."
According to the FT, people briefed on the decision said that the French state and a union representative were the only board members who hadn’t voted for the deal, apart from the Nissan representatives on the board who abstained.
Meanwhile, as Bloomberg adds, Renault’s board was poised to approve the deal with Nissan representatives abstaining from the vote. But France’s representatives asked for more time after officials made clear they wanted to discuss the deal further with Japanese officials before making a decision.
And so, with the French government dithering, Fiat abruptly withdrew its offer, upending a deal that would have created the world’s third-largest automaker.
While Renault said it would continue to review the proposal "with interest", the Italian car giant would have none of it, and in its statement, Fiat Chrysler took direct aim at the French government, owner of a 15% stake in the French carmaker, for killing the 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.
According to Bloomberg, Fiat had spent weeks navigating talks with Renault, its longstanding partner Nissan and the French state, which had ratcheted up demands over jobs, governance and factories. It had also pushed for a board seat and a payout to shareholders since the deal was announced on May 27.
The decision to walk away marks a major retreat for Fiat Chairman and scion of the founding Agnelli family John Elkann. After discussions with Renault’s cross-town rival Groupe PSA, he had opted for the riskier path, proceeding with an offer for Renault despite the complications of the significant government shareholding and the company’s strained relationship with Nissan.
The collapse of the deal also leaves Renault Chairman Jean-Dominique Senard in a difficult position, having "failed to use his diplomatic skills to bring all the parties into agreement." In addition to the demands from the French state, it emerged that French labor unions were worried about jobs Nissan felt betrayed by a partner with which it was already trying to smooth rocky relations. Now the unions can be comfortable, knowing they have nothing to fear but the French state itself.
Unable to grasp that the deal is now dead, French finance minister Bruno Le Maire is still planning a trip to Japan next week. More time was needed to reassure the Japanese side and explain the deal, a French government official told Bloomberg.
In the end, the French government was "surprised that Fiat moved so quickly to withdraw its offer."
Fiat Chrysler shares fell 4.9% to $12.55 in after-hours trading in New York, while Nissan dropped as much as 3.8% early Thursday. A successful deal would have created a company with a combined market value of $39 billion, making it the third largest in the world (just above Tesla).