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Fiat-Renault talks end in blame game as path to deal narrows

Jun 06 2019 14:49
Tommaso Ebhardt, Ania Nussbaum and Daniele Lepido, Bloomberg

Fiat Chrysler and the French government have blamed each other for the sudden collapse of talks to combine the Italian-American carmaker with Renault, even as both sides tried to keep the door open to an eventual deal.

Fiat’s surprise withdrawal of its offer came after an hours-long Renault board meeting Wednesday night ended with no decision on the plan to create the world’s third-largest automaker. Fiat took direct aim at the French state, Renault’s biggest shareholder, for scuppering the deal with a sudden request to postpone board deliberations.

Both Fiat and the government held out the possibility for the deal to come back, with a French official stressing that the administration "did not close any door." That said, finger-pointing in the aftermath of its collapse made it harder for either side to give ground. French officials sought to justify the last-minute intervention by suggesting the deal was being rushed and more time was needed to win over Renault’s alliance partner Nissan.

That stance enraged the Italian side, which saw the move instead as a fresh attempt by French Finance Minister Bruno Le Maire to renegotiate a pact that was on the verge of board approval. After weeks of discussions, Fiat had seen Nissan as playing a constructive role in the talks, despite the Japanese carmaker’s plan to abstain from voting.

"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.

Shifting Stance

The fundamental issue that caused Fiat to walk away was France’s repeated attempts to change conditions for its support, said a person familiar with the matter who asked not to be named discussing private information. While the state’s stake in the new company would have halved to 7.5%, it left the impression of wanting full control of the combined entity, a demand that was unacceptable to Fiat, this person said.

A French official told reporters Thursday that all of its demands were met - on valuation, governance, protecting jobs and industrial sites - but France needed five more days to convince Nissan to support the deal. Nissan’s two representatives at Renault’s board were planning on abstaining.

"We are gratified by the constructive approach of Nissan and wish to thank FCA for their efforts," Renault said in a statement. "We view the opportunity as timely, having compelling industrial logic and great financial merit, and which would result in a European based global auto powerhouse."

What happens next is unclear. By using the word "currently" in its statement, Fiat left open a return to the bargaining table. But it would take a strong signal from the French government to eventually lure Chairman John Elkann back to talks with Renault, whose management was in favor of the combination.

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 said Thursday 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.

Shares of Renault fell as much as 8%, the most since November, and were down 6.7% at 11:52 in Paris. Fiat gained 0.2% in Milan, reversing an earlier decline. A deal would have created a company with a combined market value of about €35bn

As it stands Elkann, the 43-year-old scion of Fiat’s founding Agnelli family, has little incentive to revive talks, pending a change of heart from Nissan and a healing of the rift with France. What’s more, tension with the French government means any chances for an alternative deal with Peugeot maker Groupe PSA, which also counts the state as an owner, are likewise nil.

Senard Role

A salvage operation could potentially fall to Senard. The former Michelin chief has good relations with the government and was brought in to lead Renault partly for his diplomatic skills in the aftermath of the Carlos Ghosn affair, which strained relations between Renault and Nissan. While he didn’t propose the deal with Fiat, he worked hard to bring it to fruition, traveling to Japan to try to win over Hiroto Saikawa, CEO of the Japanese manufacturer.

Senard plans to travel to Japan for Nissan’s shareholder assembly on June 25, but has no earlier trip planned. a person familiar with the matter said.

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

Nissan’s Take

Nissan, which wasn’t formally part of the Fiat deal, nevertheless would have had an important role as Renault’s 20-year alliance partner, sharing technology to develop new models, purchasing components cooperatively to gain discounts, and producing cars in each other’s factories.

Nissan had raised questions about cost savings, technology sharing and other matters, despite Senard’s desire to win at least conditional backing from the Japanese manufacturer.

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 €2.5bn dividend set to go to Fiat Chrysler shareholders should instead have been paid to the French company.

“The collapse of the proposed Fiat Chrysler/Renault merger leaves both firms exposed to the shifting dynamics of a sector at a crossroads,” Ilana Elbim, credit analyst for Hermes Investment Management, said in a note. With declining volumes in key auto markets, “mega mergers designed to save on capital expenditures remain inevitable.”

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 if the right conditions don’t exist.

“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.

renault  |  fiat  |  nissan  |  chrysler  |  japan  |  france  |  italy
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