MILAN, Paris (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.
Fiat’s move, upending a deal that would create the world’s third-largest automaker, came after Renault directors ended an hours-long meeting without taking a crucial vote. The French state, its biggest shareholder and the most important voice on the board, had requested deliberations be put off to a later date.
Renault said it would continue to review the proposal “with interest”. In its own statement, Fiat Chrysler took direct aim at the French government, owner of a 15 per cent stake in the French carmaker, for scuppering a deal.
“It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully,” Fiat said, adding that it remains convinced that the plan was compelling and carefully balanced. The Italian-American maker of Jeep SUVs and Ram pickups had spent weeks navigating talks with Renault, its longstanding partner Nissan Motor Co. 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.
In the end, the French sought more time to persuade Nissan to back the merger, the finance ministry said in a statement. “There’s nothing positive in the withdrawal of Fiat’s offer for Renault,” said Takeshi Miyao, an analyst at Carnorama.
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. 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.
The breakdown of late-night 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.
Fiat Chrysler Automobiles NV’s decision to abandon merger talks with Renault SA has left all parties with souffle on their faces. Both companies now have much work to do to address the respective frailties their failed merger talks have laid bare. There are questions too for the French president, Emmanuel Macron, to resolve.
The three-page proposal Fiat published a fortnight ago sketching out the merger of equals made it all sound so simple. Renault boss Jean-Dominique Senard and Fiat scion John Elkann should have known that the serenity of their private tete-a-tetes ahead of the deal’s announcement wouldn’t survive the intervention of industrial politics.
Proposing a merger with Renault was bound to further unsettle the French carmaker’s Japanese alliance partner Nissan Motor Co Ltd., which is still grappling with the issues laid bare by the downfall of the Renault-Nissan architect Carlos Ghosn. And Fiat was always going to have to reckon with the French state, which owns a 15 per cent stake in Renault and is acutely sensitive about subjects such as job guarantees and governance.
So-called mergers of equals are never easy, as the epic falling out at the Franco-Italian eyewear producer EssilorLuxottica SA makes painfully clear.
Still, having done much of the painstaking groundwork and with the stock market reacting positively, Fiat’s decision to walk away seems rash (indeed, the French have left open the door for another offer).
Could the Italians really not have waited a few more days so that Paris and Nissan could get more comfortable?
Perhaps Elkann has recognised, belatedly, that a Franco-Italian-American-Japanese automaker with the French state as an anchor shareholder would have had too many cooks in the corporate canteen. This isn’t the first time Fiat has proposed a merger and been thwarted: The late Sergio Marchionne also tried and failed to get hitched to General Motors Co.
So Fiat’s promise to revert to delivering on its independent strategy feels a bit deflating. This process has reminded investors that Fiat hasn’t invested enough in electric vehicles and that the overall carbon emissions from its vehicles are too high. For all its strengths in trucks, SUVs and the US market, Fiat also brought a weaker balance sheet to the party. It has hefty pension obligations and a big negative working capital position.
And Renault? The merger discussions have exposed just how little investors think of the French group. Subtracting its stake in Nissan, its cash, and other investments, shareholders accord no value whatsoever to Renault’s carmaking operations. That’s embarrassing, to put it mildly, and Senard will be under even more pressure to change the stock market’s view.
The trouble is, Renault shares may now bake in an even greater discount than before to reflect the fact that M&A might be a non-starter.
And what of France? The deal’s swift unravelling makes Macron’s posturing about wanting to reduce the state’s holdings in national champions — and to build European champions instead — look a little hollow. When push comes to shove, Paris will always revert to angling for every conceivable advantage and defending jobs.
Perhaps Fiat will pick up the pieces and make a third stab at an international merger. There was speculation that Peugeot SA could be a potential partner, although the French state owns a stake there too. Elkann may prefer to give Paris a wide berth after this.
There’s no question that it makes sense for automakers to pool the financial resources to invest in future technology. But savings can be achieved by loose alliances, such as the electric technology tie-up that BMW AG and Jaguar Land Rover announced.
The failure of Renault and Fiat to reach the finish-line might set back the cause of car industry consolidation. But in view of everything that can go wrong, and the inherent politics that bedevil big cross-border manufacturers, maybe that’s inevitable.
