The Italian Man, The French Man, and The Major Merger: Why the Fiat Chrysler-Renault Deal Crashed and Burned
As June began, John Elkann, grandson and heir to famed Italian businessman Gianni Agnelli and chairman of Fiat Chrysler, prematurely announced the potential merger of Fiat Chrysler and French car maker Renault. The major deal had been discussed for months between the two car companies, but no formal decisions had been made before John Elkann’s loose lips sunk the deal ship last week. Once word of the potential merger got circulated through the press, the French government made a quick move in order to protect their company; they said a merger would have to be approved by them in order to be executed. And within a day, one of the largest mergers in car history was put into limbo, having everyone wondering what the next step would be.
The planned merger between Fiat Chrysler Automobiles (FCA) and Renault SA was first put into play on May 26th. John Elkann had already contacted Renault proposing a merger that would establish the two car companies as the third largest automaker in the world, pulling up the tail end of an impressive trio of car companies including Toyota Motor Co. and Volkswagen AG. Renault entertained the deal, knowing that their current sales and an unclear future could mean bad news for France’s second largest automaker. When FCA sent over the proposed deal on May 26th, it outlined an impressive plan to have 50% of the companies owned by FCA shareholders and 50% owned by Renault Group shareholders. It seemed like a simple and fair deal; however, Renault decided to sit on it until they could iron out some important details that would seriously affect their workforce and other jobs in France, postponing the close of the deal. But by June 5th, the merger plan had officially crumbled as French Government sunk their claws into FCA chairman John Elkann and Nissan decided to air their concerns to the world.
(above image taken from Wall Street Journal)
Unplanned Fall Out
FCA’s proposal quickly crumbled weeks after it was created once Elkann began talking. In the week before the deal officially fell apart, Elkann had publicly mentioned the potential merger, stating that the proposal and its conditions were “non-negotiable.” The French government, specifically Bruno Le Maire, France’s Finance Minister, was not on board with that statement. According to the French government, every deal was negotiable and they would see to it that this one was in favor of their auto making company. What no one was saying at the time, including Renault, was that the French government was not so much worried about Renault in the deal, but rather the majority share that Renault had in Japanese-owned Nissan. For years, Renault and Nissan had worked together, both owning significant shares of the others companies. This partnership allowed them to share technology advances and allowed the smaller Renault to excel in their ever-changing world. But one large mistake that Renault made when entertaining the FCA merger was neglecting to inform their friend, Nissan, of what was coming. Once Nissan CEO Hiroto Saikawa got wind of the merger, his company followed suit with the French government, disapproving of the deal. Moreover, Nissan felt blindsided by Renault, thinking they would be allowed to negotiate in the deal, even though they did not have controlling shares in Renault. The combination of the French government’s and Nissan’s disapproval was the one-two punch the merger needed in order to be TKO’d. As of June 6th, just 11 days after the proposal was officially made by Fiat Chrysler, the major merger was dead, leaving Fiat Chrysler wondering what they would do next and Nissan and the French government with a bad taste in their mouth.
Opinion on Next Steps
The merger of these two companies was no doubt a major deal; that is obvious. But in a world where business mergers happen, what seems like, regularly, it is difficult to see why this was such a big deal. For starters, FCA and Renault are two of the smaller (major) car companies in the world. If their merger had gone through, they would have catapulted to 3rd largest in the world; that’s a huge jump. Second, if everything had been executed properly, there was potential to rope Nissan into the deal, which would have sweetened it for everyone involved. However, these are all what-ifs. The fact is that FCA spoiled the plan and Renault’s failure inform Nissan in the first place has now caused a major rift between the automakers. Next steps for the companies will be difficult. Fiat Chrysler has shown their desire to complete a major merger and boost themselves in the industry; they seem eager to do so and that looks good for them; however, the lack of control their chairman has could be detrimental to future deals. On the other hand, the French government has shown that they will not be bullied into any deals, and neither will their companies. This puts Renault in a tough spot for future deals and it’s obvious that they will have to consult the French government before proceeding in the future. At the end of the day, any major mergers for either company will be positive, but difficult. As the car industry continues to evolve day-by-day, both Renault and Fiat Chrysler will have to make plans on how to proceed and stay in tune with the rest of the major automakers, or else fear being left behind and shuttered. Only time will tell what their true next steps will be.
Written by: Brendan Jacob
Featured Image Source: