Merger negotiations between Renault and Fiat-Chrysler had reached a point where continuing would be "unreasonable", the Italian-American carmaker’s boss John Elkann said on Thursday after the talks’ spectacular collapse.
"When it becomes clear that the conversations have been brought to the point beyond which it becomes unreasonable to go, it is necessary to be equally brave to interrupt them," Elkann wrote in a letter to employees published by Italian media.
Fiat Chrysler (FCA) had stunned the markets last week by proposing a "merger of equals" with the French group that would create an auto giant spanning the globe, encompassing Renault’s Japanese partners Nissan and Mitsubishi Motors.
The French government, which controls 15 percent of Renault, gave it a conditional green light but also warned against "haste". It was said by analysts to have been pressing for more control over the new firm alongside Fiat’s Agnelli family.
But FCA said late on Wednesday that the "political conditions in France do not currently exist for such a combination to proceed successfully."
Elkann insisted on Thursday that "the decision to start these conversations with Renault was correct, a decision we made after preparing ourselves on all fronts."
"The broad consensus it received was a clear signal that our timing, as well as the balance of what we proposed, was correct."
Elkann said that the decision to stop talks was taken to protect the interests of the company and of stakeholders.
"We will continue to be open to opportunities of all kinds that offer the possibility of strengthening and accelerating the realisation of this strategy and creating value," Elkann said.
Renault expressed its "disappointment" at the about-turn.
"We view the (Fiat) opportunity as timely, having compelling industrial logic and great financial merit, and which would result in a European-based global auto powerhouse," it said in a statement.
The combined group, including Nissan and Mitsubishi, would have been by far the world’s biggest, with total sales of some 15 million vehicles, compared to both Volkswagen and Toyota, which sell around 10.6 million apiece.
Despite the verbal sparring that erupted after FCA’s announcement, industry experts did not rule out talks being resumed.
"The collapse of the proposed Fiat Chrysler/Renault merger leaves both firms exposed to the shifting dynamics of a sector at a crossroads," Ilana Elbim, credit analyst for Hermes Investment Management, said in a note.
Pointing to falling sales volumes in major car markets, she said "mega-mergers designed to save on capital expenditures remain inevitable".
Renault was close to budging
On Tuesday, Renault’s board had said it was studying FCA’s offer "with interest", but held off final approval pending further deliberations.
By Wednesday, all Renault directors had come round in favour of the merger, with exception of employee’s representative affiliated with the powerful CGT union and two from Nissan who abstained, according to a source close to Renault.
The two Nissan directors were said to have asked for more time to approve the deal. There was no official comment from Nissan headquarters in Tokyo.
Relations between Renault and Nissan have come under strain since the arrest in November of their joint boss, Carlos Ghosn, who awaits trial in Japan on charges of financial misconduct.
French Finance Minister Bruno Le Maire had laid down conditions for the tie-up with FCA, insisting there be no plant closures and that the Renault-Nissan alliance be preserved.
The Renault source said Le Maire had asked for another board meeting next Tuesday following his return from a trip to Japan where he was to discuss the proposal with his Japanese counterpart at a meeting of G20 finance ministers.
A source close to FCA said it was the "sudden and incomprehensible" objections by Le Maire’s ministry that had caused the deal to collapse.
Italian Deputy Prime Minister Luigi Di Maio said: "When politics tries to intervene in economic procedures, they don’t always behave correctly, I don’t want to say any more."
But Le Maire stressed that, of his conditions, only the explicit approval of Nissan remained to be secured, while aides denied that the ministry had played politics with the deal.
A source close to the finance ministry said the French government "regrets the hasty decision of FCA".
"Despite significant progress, a short delay was still necessary so that all conditions set by the state could be met."
Le Maire indicated the French government was amenable to changes at Renault despite FCA’s U-turn.
"We remain open to the prospect of industrial consolidation, but once again, in calmness, without haste, to guarantee the industrial interests of Renault and the industrial interests of the French nation," he told the French parliament.
For his part, Elkann said FCA "will continue to be open to opportunities of all kinds that offer the possibility of strengthening and accelerating the realisation of this strategy and creating value".