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StockBeat: Renault Left Exposed as Fiat Balks at French State Meddling

by Geoff Smith - A successful, global car alliance cannot be run by French politicians and bureaucrats.

That seems to be the message that Fiat Chrysler (NYSE:FCAU) has sent with the sudden withdrawal of its offer to merge with Groupe Renault (PA:RENA).

“It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully,” FCA said in a stinging press release, after the French government representatives on Renault’s board asked to delay a vote on accepting the merger terms.

The government delegates and a French labor representatives were the only board members opposed to the deal, according to the Financial Times. Finance Minister Bruno Le Maire had already pushed the envelope by seeking more guarantees on keeping as much as possible of the company’s future activity in France, despite initially signalling its approval for the deal.

The Wall Street Journal reported people close to the U.S.-Italian company as seeking to “move the goalposts” and wanting the last word on everything.

The collapse of the talks leaves everyone worse off, but hits Renault worst. It’s down 7.0% as of 4.30 AM (0830 GMT), while FCA is up 0.6%.

The benchmark Euro Stoxx 600 meanwhile, was up 0.6% at 376.30, on growing signs of support for markets from central banks (India’s cut interest rates earlier Thursday, while many expect the ECB to loosen its stance further later). The CAC 40 was up 0.7% and the FTSE MIB up 1.0%.

Not only has FCA called it out publicly for being stuck in a nationalist-dirigiste time warp, but it has done so after Renault’s management offended long-time alliance partner Nissan by not telling it about the FCA talks. (Nissan’s complaints about a breach of trust will meet with wry smiles in France after Japan’s treatment of Carlos Ghosn in the last few months.)

Le Maire told BFMTV Wednesday that it‘s worth taking time to get things right. He’s due in Japan for a G20 meeting at the weekend and will no doubt take the opportunity to press the case for Renault’s merger offer to Nissan that the Japanese rejected.

Sequencing is all: a formal combination of the French and Japanese companies would give them the whip hand in any subsequent talks with FCA. By contrast, Nissan would have lost bargaining power with its European partner, had the FCA-Renault merger gone ahead.

One thing is certain: the strategic rationale for combining has not gone away, as the costs of transitioning to an electric and autonomous car future are not getting any less (witness BMW’s announcement yesterday on cooperating with Jaguar Land Rover on electric engines and powertrains).

The talks will almost certainly be revived in one form or another. The issue for both companies in the meantime is how they can strengthen their own positions in the meantime, in a global market that is stuttering badly.

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