France tries to dodge blame for blowing up FCA-Renault merger deal

PARIS — France sought to fend off a hail of criticism on Thursday after it was blamed for scuppering a $35 billion-plus merger between carmakers Fiat-Chrysler and Renault only 10 days after it was officially announced.

Shares in Italian-American FCA and France's Renault fell sharply in early trading after FCA pulled out of talks, saying "the political conditions in France do not currently exist for such a combination to proceed successfully."

French finance minister Bruno Le Maire said the government, which has a 15% stake in Renault, 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.

However, a source close to FCA played down the significance of Nissan's stance in the discussions, believing French President Emmanuel Macron was looking for a way out of the deal after coming under pressure at home.

Context

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

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 merger had aimed to achieve 5 billion euros ($5.6 billion) in annual synergies, with FCA gaining access to Renault's and Nissan's superior electric drive technology and the French firm getting a share of FCA's lucrative Jeep and Ram brands.

FCA has long been looking for a merger partner, and some analysts say its search for a deal is becoming more urgent as it is ill-prepared for tougher new regulations on emissions. 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, adding Paris would be happy to re-examine any new proposal from FCA.

"Talks could resume at some time in the future," he told FranceInfo radio.

However, Evercore ISI analysts said the chances of a deal had "materially fallen."

Blame game

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

Nissan, which is 43% owned by Renault and had 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 investor frustration with France, which has a long history of intervening in company matters.

"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 1010 GMT, Renault shares were down 6.7% at 52.48 euros, while FCA shares in Milan had recovered early losses to trade up 0.5% at 11.76 euros.

PSA shares were up 0.5%, as some analysts speculated it could again be targeted by FCA.

'They'll try again with Renault'

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 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 5-Star leader Luigi Di Maio told Italian state radio on Thursday.

France's Le Maire said: "An agreement had been reached on three of the four conditions. What remained to be obtained was the explicit support of Nissan."

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