French wouldn't back merger without the support of auto maker's partner Nissan

By Nick Kostov and Stacy Meichtry 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 6, 2019).

PARIS -- Fiat Chrysler Automobiles NV on Wednesday withdrew its proposal to merge with Renault SA after the French government balked at the deal because it lacked the support of Nissan Motor Co., according to people familiar with the matter.

The French state, Renault's top shareholder, went into a marathon board meeting Wednesday evening saying its prime condition for approving the $40 billion merger was that the deal fit within the framework of Renault's decadeslong alliance with Nissan, the people said.

Nissan's two representatives on Renault's board planned to abstain in the vote, the people said, raising doubts about Nissan's commitment to preserving the alliance if the merger were to proceed, the people said.

The state asked to delay a vote on the merger, prompting Fiat Chrysler to withdraw its merger proposal, the people said.

Confirming its withdrawal, Fiat Chrysler said it remained convinced of the "transformational rationale" of its proposal. "However it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully," the company said.

"The French state has been intrusive in the extreme," said a person close to Fiat Chrysler. "They have sought the final word on every issue and this has created a situation of uncertainty that finally became intolerable."

The Italian-American auto maker's merger proposal aimed to build scale to cope with slowing sales and the rising cost of developing electric vehicles and self-driving cars. The combined company, if realized, would boast production of almost nine million passenger cars and light trucks a year, placing it just behind Volkswagen AG and Toyota Motor Co.

The negotiations represented a test of the European auto industry's ability to overcome national economic rivalries and establish a European champion, akin to Airbus SE in aviation.

Fiat Chrysler sent Renault directors a merger proposal on May 26 that called for the combined business to be 50%-owned by its shareholders and 50% by Renault shareholders.

French and Italian officials signaled cautious support for the deal when the proposal was made public last week. The French state, which has two seats on Renault's board, had pushed Fiat Chrysler for concessions in recent days.

Going into Wednesday's board meeting, Fiat Chrysler and the French government had reached a tentative deal, according to a French official. The auto maker was confident that its revised proposal had met all of the French government's demands only to discover "the goal posts had been moved," said the person close to Fiat Chrysler.

With Nissan representatives prepared to abstain if Renault's board took a vote, the French government asked for more time so that Finance Minister Bruno Le Maire could use an upcoming visit to Japan to press the case for a merger with the Japanese, according to a French official.

Complicating the consummation of the deal was the two-decade partnership between Renault and Nissan in which they, along with Mitsubishi Motors Corp., share technology and vehicle parts. Renault owns 43.4% of Nissan, while Nissan owns 15% of Renault.

People close to Fiat Chrysler and Renault said the merger to succeed needed Nissan's buy-in, in part because the Japanese company co-owns some of the intellectual property that underpins the alliance.

Over the years the alliance served both companies well. But long-simmering tensions between the partners erupted late last year following arrest in Japan of Carlos Ghosn, the auto titan who was once the glue that held the alliance together.

Jean-Dominique Senard, who replaced Mr. Ghosn as chairman of Renault, fueled mistrust at Nissan by keeping the Japanese auto maker in the dark about the merger talks before they were publicly disclosed, according to people familiar with the matter.

Mr. Senard, who was in line to lead the combined company, emailed Nissan Chief Executive Hiroto Saikawa about the proposal hours before it was made public, the people said.

"The idea you would negotiate a merger without speaking with your 20-year partner is absolutely extraordinary," a person close to Nissan said. "It's about trust, and that's the problem here."

After that Renault had updated Nissan on the talks but the Japanese company didn't have a seat at the negotiating table, people familiar with the negotiations said.

People close to Renault and Nissan say a merger with Fiat Chrysler would have forced the companies to renegotiate a thicket of contracts that determine how the partners share everything from vehicle platforms to engines.

Mr. Saikawa on Monday 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," he said.

Write to Nick Kostov at Nick.Kostov@wsj.com and Stacy Meichtry at stacy.meichtry@wsj.com

 

(END) Dow Jones Newswires

June 06, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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