Why Fiat Chrysler walked away from Renault merger

As Renault board members met on Wednesday evening to discuss a merger offer from  Fiat Chrysler Automobiles, it appeared that Renault Chairman Jean-Dominique Senard, FCA Chairman John Elkann and representatives of the French government had ironed out most of their differences.

Then FCA abruptly walked away.

Fiat Chrysler blamed French politics. In a statement, it said: "It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully."

France's finance minister, Bruno Le Maire, said on Thursday that the government, which has a 15 percent stake in Renault, had not been prepared to back a deal that was not supported by Renault's alliance partner Nissan.

Nissan had signaled that its representatives on the board would abstain. During the board meeting, French government representatives sought to persuade Nissan to endorse the deal. The meeting was held up three times for consultations, people familiar with the events told Reuters.

When it came to a vote, the Nissan representatives abstained, the leftist CGT union voted against, and all other directors voted for it. When it was the French state representatives' turn to vote, they insisted that the vote be postponed.

Renault's Senard requested that Fiat Chrysler grant a delay. Instead, FCA quickly rejected the request, a person familiar with the events said.

Renault said in a statement that the board was "unable to take a decision due to the request expressed by the representatives of the French State to postpone the vote."

France's Le Maire said on Thursday that an agreement had been reached on three of the four conditions. "What remained to be obtained was the explicit support of Nissan," he said in a statement.

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 FCA; ensuring the new company commit to developing electric batteries along with Germany.

France’s suggestion that the deal was being rushed enraged FCA, a source told Bloomberg. The Italian side saw the move as a fresh attempt by France to renegotiate a pact that was on the verge of board approval.

France’s stake would have been halved to 7.5 percent but it gave the impression that the government wanted full control, a demand unacceptable to FCA.

Questioned by reporters outside his home in Tokyo just hours after the collapse of the deal, Nissan CEO Hiroto Saikawa said he had not heard anything official and repeatedly declined to comment.

Nissan had earlier indicated that a full merger between Renault and FCA would significantly alter the structure of Nissan's cross-shareholding alliance with Renault and require a fundamental review of their relationship.

The opposition from Nissan representatives raised doubts about the Japanese automaker's commitment to preserving the alliance if the merger were to proceed.

In withdrawing the merger offer, FCA's Elkann might have been following the mantra of the automaker's late CEO, Sergio Marchionne, who warned that it is also crucial to end talks without the right conditions. "It's as important to walk away from the table as it is to sit down," Marchionne told Bloomberg in a joint 2014 interview with Elkann at FCA's test track of Balocco in northern Italy.

Fiat Chrysler had become increasingly aware of the pitfalls of pursuing a Renault merger without its larger alliance partner's buy-in. "Nissan needs to be in the loop," an FCA source told Reuters shortly before the deal fell apart.

Bloomberg and Reuters contributed to this report