Fiat Walks Away From Renault Talks, Blaming French State

(Bloomberg) -- Fiat Chrysler Automobiles NV abruptly withdrew its offer to combine with Renault SA after the French carmaker’s board -- on the brink of approving the deal -- postponed a decision for a second time.

Both companies’ shares fell in early trading, with Renault tumbling as much as 8% in Paris and Fiat dropping as much as 3.8% in Milan. A deal would have created a company with a combined market value of about 35 billion euros ($39 billion).

Fiat’s bold move, upending a deal that would create the world’s third-largest automaker, came after Renault directors ended an hours-long meeting that went late into Wednesday night. The French state, its biggest shareholder and the most important voice on the board, had made a sudden request for deliberations to be postponed.

“It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully,” Fiat said in a statement that pulled the plug on the offer.

While Fiat took direct aim at the French government, owner of a 15% stake in the French carmaker, for scuppering a deal, it left the door open for a possible rekindling of talks by using the word “currently.” The French had sought more time to persuade Renault’s longtime partner Nissan Motor Co. to back a merger. Finance Minister Bruno Le Maire is scheduled to be in Japan for G-20 meetings in the coming days and will meet with Japanese Economy Minister Hiroshige Seko, according to French officials.

French Budget Minister Gerald Darmanin on Thursday said the government would be open to a new approach from Fiat for Renault in the future.

“Maybe tomorrow or the day after tomorrow or next week we could talk again with this Italian giant,” Darmanin said on France Info radio.

The Italian-American maker of Jeep SUVs and Ram pickups had spent weeks navigating talks with Renault, 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.

"There’s nothing positive in the withdrawal of Fiat’s offer for Renault," said Takeshi Miyao, an analyst at Carnorama in Tokyo.

The decision to walk away marks a significant 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 breakdown of the talks just as a deal appeared to be in hand also leaves Renault Chairman Jean-Dominique Senard in a difficult position, having sought and failed to use his diplomatic skills to bring all the parties into agreement. In addition to the demands from the French state, French labor unions were worried about jobs and Nissan felt betrayed by a partner with which it was already trying to smooth rocky relations.

A first attempt to get the plan through ended Tuesday night when Renault’s board, meeting at its Boulogne-Billancourt headquarters outside of Paris, adjourned without deciding on the Fiat proposal. It said it needed to study the draft in detail.

On Wednesday night, Renault’s board was poised to approve the deal with Nissan representatives abstaining from a vote, according to people familiar with the matter. 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, they said.

More time was needed to reassure the Japanese side and explain the deal, a French government official said, asking not to be identified under administration rules. The government was surprised that Fiat moved so quickly to withdraw its offer.

Criticism of the proposal has gathered steam in recent days as Le Maire multiplied public comments on conditions the government was attaching to an eventual deal.

Nissan, which wasn’t formally part of the Fiat deal, nevertheless has an important role as Renault’s 20-year alliance partner, sharing technology to develop new models, purchasing components at scale and producing models from each brand in the same factories.

Nissan had withheld its support for the Fiat deal, raising questions about cost savings, technology sharing and other matters, despite Senard’s desire to win at least conditional backing from the Japanese manufacturer.

Getting Nissan’s backing before pressing ahead was seen as crucial to avoid disruptions during the execution of the merger, a French government official said.

Questioned by reporters outside his home in Tokyo just hours after the collapse of the deal, Nissan CEO Hiroto Saikawa said he hadn’t heard anything official and repeatedly declined to comment.

Some Renault investors had also voiced doubts. 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 dividend set to go to Fiat Chrysler shareholders should instead be paid to the French company.

Fiat Chrysler has been seeking a third partner since former CEO Sergio Marchionne and Elkann created the company in 2014 with Fiat’s full acquisition of the Detroit automaker. Even so, the late deal-maestro warned in a joint interview with Elkann that it is also crucial to end talks without the right conditions.

“It’s as important to walk away from the table as it is to sit down,” said Marchionne in 2014, while smoking Muratti cigarettes and sipping espresso at the carmaker’s test track of Balocco in Northern Italy.

--With assistance from Gabrielle Coppola and Geraldine Amiel.

To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net;Ania Nussbaum in Paris at anussbaum5@bloomberg.net;Daniele Lepido in Milan at dlepido1@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Frank Connelly, Tara Patel

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