FCA Blames French Politics As It Pulls Renault Merger Proposal

Within hours of a potential deal, the board of Fiat Chrysler Automobiles FCAU yanked its proposed merger with Groupe Renault RNLSY in what would have created a $35 billion automobile powerhouse. The board laid the blame squarely on politics in Renault's native France, which controls 15 percent of the carmaker.

"FCA remains firmly convinced of the compelling, transformational rationale of a proposal that has been widely appreciated since it was submitted, the structure and terms of which were carefully balanced to deliver substantial benefits to all parties. However, it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully," the FCA board said in a statement Wednesday evening.

"Groupe Renault expresses its disappointment not to have the opportunity to continue to pursue the proposal of FCA," the Renault board of directors 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." 

According to Automotive News, the merger would have cut the French government's stake in half.

Merger talks had been ongoing for some time, although they were first reported last week.

During its recent earnings call, Mike Manley, Fiat Chrysler CEO, hinted at a potential merger with another OEM, saying that the company is "going into an environment where there are going to be opportunities."

The belief was that the merger would help both companies, which have extensive operations in Europe but lack clout in other markets, including China. FCA has benefited from SUV and truck sales in the U.S. under its Chrysler and Ram brands, but both companies were lagging in development of electric technology.

FCA's proposal called for equal ownership between both FCA and Renault shareholders, creating a balanced governance structure with the majority of the board of directors being independent. Reports indicated that company headquarters would be located in Paris in an effort to win support of the French government.

The FCA proposal stated that the merger would pave the way for bolder company-wide decisions in the face of the auto industry's transformation in the connectivity, electrification and autonomous driving verticals.

"The benefits of the proposed transaction are not predicated on plant closures, but would be achieved through more capital-efficient investment in common global vehicle platforms, architectures, powertrains and technologies. FCA has a history of successfully combining OEMs with disparate cultures to create strong leadership teams and organizations dedicated to a single purpose," said FCA in its statement. "FCA's Board strongly believes that this combination, which would have the scale, expertise and resources to navigate the rapidly changing automotive industry, would create new opportunities for employees of both companies and for other key stakeholders."

Many believed that a merger would lead to plant closures and job losses, however, and that concerned the French government.

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