PARIS -- Fiat Chrysler Automobiles' plan to merge with Renault drew criticism from rival French automaker PSA Group.
In a memo sent to PSA's top executives on Monday, CEO Carlos Tavares highlighted risks to the proposal. Renault was chosen mainly because its value was depressed by the troubled alliance with Nissan following the Carlos Ghosn affair, according to the memo.
"The transaction proposed by Fiat Chrysler therefore seems particularly opportunistic, largely to its benefit," the note said, while acknowledging potential for savings. "For Renault, this may be an asset in discussions with Nissan, but it could also weaken the alliance or even lead to an unwinding."
PSA held talks with Fiat Chrysler earlier this year on potential collaboration.
A PSA spokesman declined to comment.
For Tavares, Fiat Chrysler's decision to pair up with Renault represents a missed opportunity. Since arriving in 2014, the 60-year-old executive -- a former protege of Ghosn at Renault -- has turned around a struggling PSA by focusing relentlessly on efficiency and scale. He held talks with Fiat Chrysler earlier this year to build a new "super platform" before FCA slipped into the arms of Renault.
Tavares may be left with options such as a potential tie-up with Jaguar Land Rover. More than three-quarters of PSA's revenue comes from Europe, where automakers face a consumer slowdown and a squeeze on profit margins from stricter emission regulations.
At the Geneva auto show in March, it looked like Fiat Chrysler and PSA would pair off. Tavares and his counterpart at Fiat Chrysler, Mike Manley, spoke publicly about the desire to participate in consolidation.
But Fiat Chrysler Chairman John Elkann was not convinced. A deal with PSA would rely on disruptive and politically unpalatable job cuts, while Renault offered a more-advanced program for electric cars and greater access to Asia through Nissan.
Renault's share price has hovered near five-year lows, according to the memo, which -- echoing some analysts -- contends the automaker's market value is negative after stripping out its 43 percent Nissan stake and banking business RCI.
"Renault's current valuation largely explains Fiat's interest in a merger," the memo said, calling the deal a "virtual takeover of Renault by Fiat."
Relations between Nissan and Renault have been strained since the arrest of alliance leader Ghosn in November. Recently, Nissan pushed back against a Renault plan to join together under a 50-50 holding company structure. Should the alliance break up, Renault may end up unwinding its Nissan stake "under particularly deteriorated conditions," the memo said.
The Franco-Italian tie-up bears management and governance risks, along with the possibility of antitrust remedies, according to the note. The transaction will "open a period of fragility for the various actors," it concluded.