Complex Made Simple

Fiat Chrysler pulls the plug on $36.5 billion Renault merger – Was it ever meant to be?

And so it ends for the merger that was going to create the 3rd largest automaker in the world - in less than 2 weeks.

Fiat Chrysler has officially pulled its proposal for a merger It cited unfavorable "political conditions in France" In reality, it took more than the French political sphere to hinder this consolidation attempt

Last week, Fiat Chrysler made Renault a $36.5 billion offer it can’t refuse – except, it just did. 

Adieu, Fiat Chrysler 

What Fiat Chrysler Automobiles (FCA) was proposing was going to lead to one of the greatest value deals of the decade, set to make the new consolidated company the 3rd largest automaker in the world. 

Now, it’s all in shambles.

Regarding the failed 50-50 deal, FCA has reasoned that “the political conditions in France do not currently exist for such a combination to proceed successfully.”

Following the announcement, Renault shares dropped 7%, while FCA shares dropped 3%. 

Shares in Japan’s Nissan, the second-biggest shareholder in Renault, fell as much as 3.6% in early Tokyo trading on Thursday but bounced back to sit down 1.3% by the early afternoon, the Financial Times (FT) reported. 

Renault had delayed making a decision on the matter twice this week, with some notable hurdles standing in its way. 

“Longtime Renault partner Nissan Motor Co. has put up some resistance, while the French company’s most powerful shareholder – the government – has outlined a list of demands on jobs and a board seat,” Bloomberg said. 

FT reported that “Following more than six hours of discussion on Wednesday evening at Renault’s headquarters in Paris, the French carmaker said it ‘was unable to take a decision because of the request expressed by the representatives of the French state to postpone the vote to a later council’”. 

“Nissan CEO Hiroto Saikawa muddied the waters Monday by saying the company needs to review the future of its two-decade alliance with Renault, including contractual relationships, in light of the proposed Fiat deal,” the news outlet continued. 

It was never going to be a clear-cut deal

When Fiat Chrysler proposed a merger with Renault last week, it should have realized that it was never going to be a clear-cut deal. This wasn’t FCA walking over to Renault offering a one-on-one deal – many more parties were in fact involved. FCA couldn’t have not realized that. 

Take Renault, for example. The French company was already in a three-way alliance with Nissan and Mitsubishi. One of these companies was already dealing with inner turmoil of its own, with its most prolific ex-chairman Carlos Ghosn embroiled in a legal tug of war. The origin of that affair was inner resistance from executives to a closer merger between Nissan and its French counterpart. 

The reasons? Plenty. For one, Nissan didn’t want to lose its autonomy. Moreover, Renault has a large ownership stake in Nissan, 40%, while Nissan has only 15% invested in Renault. To make matters worse, the French government has a 15% stake in Renault, which by extension would expand its authority over Nissan, a traditionally proud Japanese company. 

With FCA out of the picture, it seems that it’s back to Renault and Nissan sitting down to agree on their next move. The Ghosn-backed merger still hangs heavily over the tri-sided alliance, and particularly Nissan and Renault will have to focus on reaching an agreement regarding their future together.