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France seeks to fend off blame for FCA-Renault deal collapse

Minister says govt won't back deal without nod from Renault's current alliance partner Nissan

Paris

FRANCE sought to fend off a hail of criticism on Thursday after it was blamed for scuppering a US$35 billion-plus merger between carmakers Fiat-Chrysler FCA and Renault only 10 days after it was officially announced.

FCA pulled out of talks, saying "the political conditions in France do not currently exist for such a combination to proceed successfully". French finance minister Bruno Le Maire said the government, which has a 15 per cent stake in Renault, had engaged constructively, but had not been prepared to back a deal without the endorsement of Renault's current alliance partner Nissan.

Nissan had said it would abstain at a Renault board meeting to vote on the merger proposal. However, a source close to FCA played down the significance of Nissan's stance in the discussions, believing French President Emmanuel Macron was looking for a way out of the deal after coming under pressure at home.

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The FCA-Renault talks were conducted against the backdrop of a French public outcry over 1,044 layoffs at a General Electric factory. The US company had promised to safeguard jobs there when it acquired France's Alstom in 2015.

The collapse of the deal, which would have created the world's third-biggest carmaker behind Japan's Toyota and Germany's Volkswagen, revives questions about how both FCA and Renault will meet the challenges of costly investments in electric and self-driving cars on their own.

The merger had aimed to achieve 5 billion euros (S$7.7 billion) in annual synergies, with FCA gaining access to Renault's superior electric drive technology and the French firm getting a share of FCA's lucrative Jeep and RAM brands.

FCA has long been looking for a merger partner, and some analysts say its search for a deal is becoming more urgent as it is ill-prepared for tougher new regulations on emissions. It previously held unsuccessful talks with Peugeot maker PSA Group , in which the French state also owns a stake.

French budget minister Gerald Darmanin said the door should not be closed on the possibility of a deal with Renault, adding that Paris would be happy to re-examine any new proposal from FCA.

However, Evercore ISI analysts said the chances of a deal had "materially fallen". The collapse of the talks could further fray relations between Renault and Nissan, already strained by the arrest and ouster of alliance chairman Carlos Ghosn, who is now facing trial in Japan on financial misconduct charges he denies.

Nissan, which is 43 per cent owned by Renault and has recently rebuffed a full merger proposal from its French partner, was blindsided by the FCA-Renault tie-up plan and said it would require a fundamental review of its relationship with Renault.

"How can we support the deal?" said a Nissan management source soon before the talks collapsed. "We weren't at the table, so we haven't had time to evaluate its impact on Nissan and the alliance." The deal's failure could also add to investor frustration with France, which has a long history of intervening in company matters.

"With FCA pulling its merger offer, one has to wonder how much the French state is set on limiting Renault's strategic and valuation opportunities despite having only a 15 per cent stake," analysts at brokerage Jefferies wrote in a note to clients.

But one banker who has worked on several FCA and car industry deals in the past said: "There are few alternatives available for FCA, I think they'll try again with Renault." The collapse of the FCA-Renault deal followed days of bickering between France and Italy over Paris's demands. REUTERS