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Is the Fiat-Renault Deal Really Dead? Not Necessarily

Is the Fiat-Renault Deal Really Dead? Not Necessarily

(Bloomberg) --

As Fiat Chrysler Automobiles NV and the French government trade jibes over the collapse of the proposed merger between the Italian carmaker and Renault SA, there are signs the deal isn’t quite dead.

Below are key questions overhanging the project. The answers may determine whether the parties can get past their differences, return to the negotiating table and create the world’s third-largest carmaker.

What are the biggest hurdles to a deal?

Combining was never going to be easy given the competing interests of governments, workers and Renault’s partners in Japan, Nissan Motor Co. and Mitsubishi Motors Corp.

The French government insists more time was needed to meet one of its four key conditions – getting clear backing from Nissan for the merger -- and that Fiat was rushing ahead with undue haste, according to a senior official. The Japanese carmaker’s representatives on Renault’s board had planned to abstain from a vote on the deal, people familiar with the matter had said. That wasn’t good enough, even though all the French state’s other demands had been satisfied, the official said.

Fiat had a different perspective: It grew impatient with French attempts to alter the conditions of the merger and its effort to keep control of the combined company -- in which its stake would halve to 7.5% -- according to a person close to the Italian-American carmaker.

Despite the finger pointing, the French state -- Renault’s most powerful shareholder -- said Thursday it hadn’t closed the door on a possible merger. For its part, Renault expressed disappointment and said the combination had “compelling industrial logic and great financial merit.” The question is whether Fiat’s abrupt decision to pull its offer was more than brinkmanship.

Can Nissan be brought on board?

Not easily. The tense relationship between Renault and Nissan was damaged by the November arrest and ouster of former Chairman Carlos Ghosn. Renault is paying dearly for having failed to mend fences with Nissan before setting its sights on Fiat.

Is the Fiat-Renault Deal Really Dead? Not Necessarily

At the heart of the problem is the lopsided shareholding arrangement, with Renault owning 43% of the Japanese carmaker with voting rights and Nissan having a 15% stake in Renault, stripped of votes. A fear of losing more power led Nissan to rebuff a merger approach from Renault in April. By May, Renault was already in deep discussions with Fiat for a 50-50 combination that would have further diluted the Japanese holding, though Nissan would have regained voting rights.

Nissan Chief Executive Officer Hiroto Saikawa said Monday a deal between Renault and Fiat would lead it to a review the future of its decades-long alliance with Renault. He asked for time to consider the risks.

Who can bridge the differences between the key parties?

At the center of the drama is Renault Chairman Jean-Dominique Senard, a soft-spoken and diplomatic Frenchman who knows his way around the corridors of power within the French finance ministry and enjoys the trust of the government. He was parachuted into Renault by the state to patch up relations with Nissan and has spent long hours shuttling between Paris and Tokyo to meet with Saikawa, with whom he developed a certain rapport.

Is the Fiat-Renault Deal Really Dead? Not Necessarily

The question is whether the 66-year-old can smooth the ruffled feathers between Fiat Chairman John Elkann, the French-speaking scion of the founding Agnelli family, and Bruno Le Maire, a diplomat-turned center-right politician who has been finance minister since the election of President Emmanuel Macron two years ago. Senard already had a full plate trying to repair the alliance with Nissan following Ghosn’s shocking arrest, and now will have to shoulder the burden of salvaging the biggest auto merger in decades.

Where do we go from here?

First stop will be Japan, where Le Maire will discuss the Renault-Nissan alliance with Economy Minister Hiroshige Seko on the sidelines of the G-20 meetings in coming days, according to French officials. Yet political meetings may not be all that’s needed to salvage the quickly arranged deal.

Renault has indicated Senard may attend Nissan’s June 25 shareholders’ meeting, when he could attempt to soothe Saikawa’s concerns and make a display of supporting him for a new mandate -- or not.

--With assistance from Ania Nussbaum, Geraldine Amiel, Tommaso Ebhardt, Reed Stevenson, Ma Jie, John Follain and Gregory Viscusi.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

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

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