FCA, Renault attempting to revive merger deal, but Nissan demanding stake cut from the French – report

Surprise surprise, there’s more to this intriguing family drama! Fiat Chrysler Automobiles (FCA) has walked away from merger talks with Renault, citing “political conditions” in France as an insurmountable issue. The French government, which owns a majority 15% of Renault, pointed its fingers to Nissan, which did not endorse the plan. Apparently, all parties are now looking for ways to resuscitate talks.

According to Reuters, citing several sources close to the companies, Renault is trying to secure the approval of its long-time alliance partner Nissan. The marriage between these two carmakers were already on the rocks prior to the FCA merger drama, with Renault seeking for more integration and Nissan – which is the bigger carmaker but 43.4% owned by Renault – more independence.

The newswire’s report claims that Nissan is poised to urge Renault to significantly reduce its majority stake in the Japanese company in return for supporting the FCA-Renault merger. Needless to say, this will be tricky. Of course, Renault is an attractive merger partner because of its stake in Nissan, and a big reduction in its interests would alter this.

Lured by the promised five billion euros a year worth of synergies, both FCA and Renault really wanted the $35 billion merger to happen, but FCA chairman John Elkann abruptly withdrew his offer in on June 6 after the French government blocked a vote by its board and demanded more time to win Nissan’s backing. Nissan reps had said they would abstain.

France wanted Nissan on board, and finance minister Bruno Le Maire has put that on record more than once. “An agreement had been reached on three of the four conditions. What remained to be obtained was the explicit support of Nissan,” he said.

France’s four conditions were respecting Renault’s existing alliance with Nissan, keeping jobs in France, forming a balanced corporate governance structure between Renault and Fiat, and ensuring the new company commit to developing electric batteries along with Germany.

“Looking at the past 20 years, we see that this quality of Renault has been reinforced by its partnership with Nissan. Therefore it is essential not only to preserve, but to strengthen this alliance. That has always been the strategy of the state and it remains the strategy of the state as shareholder,” the minister told reporters last week in Fukuoka after a meeting of G20 finance ministers.

Le Maire even went as far as saying that France was ready to reduce its 15% stake in Renault to win Nissan’s backing. “We can reduce the state’s stake in Renault’s capital. This is not a problem as long as, at the end of the process, we have a more solid auto sector and a more solid alliance between the two great car manufacturers Nissan and Renault,” he told AFP.

So, what’s the current status of the negotiations? According to three alliance sources via Reuters, since the breakdown, Elkann and his Renault counterpart Jean-Dominique Senard have had talks about reviving the plan. Those talks left Senard and his CEO Thierry Bollore upbeat about that prospect.

Separately, Toby Myerson, one of Elkann’s senior advisors on the Renault merger bid, was expected at Nissan’s Yokohama base yesterday for exploratory discussions with top management. Nissan CEO Hiroto Saikawa was likely to have been in attendance.

Nissan as “kingmaker” wasn’t part of the original plan. The newswire’s report says that Elkann and Senard had planned to press ahead with a merger agreement despite Nissan’s abstention, in the belief that the deal’s economics would compel the latter to cooperate.

It’s ironic then that by blocking that strategy at the eleventh hour, the French government – whose outsized influence in the Alliance Nissan has long worried about – may have handed the Japanese company the bargaining chip it holds today. Not ending anytime soon, this drama.

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