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French government owns 15% of Groupe Renault, requested delay in merger negotiations, forcing FCA to end discussions.

FCA Withdraws Renault Merger Proposal

Fiat Chrysler says that during negotiations it had “become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”

Fiat Chrysler Automobiles withdraws its proposal for a $37 billion merger with Groupe Renault, scuttling plans to create the world’s third-largest automaker.

In a statement issued following six hours of talks between the two companies Wednesday evening in Paris, FCA says it “remains firmly convinced of the transformational rationale of the proposal that has been widely appreciated since it was submitted, the structure and terms of which were carefully balanced to deliver substantial benefits to all parties.”

But the U.S.-Italian automaker says it had “become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”

FCA’s decision to quit the merger talks came as members of the Groupe Renault board refused to pursue a decision on a stock swap proposal.

The French government, which holds a 15% stake in Groupe Renault, requested a delay in merger negotiations, forcing FCA to cut off the talks.

Groupe Renault says it “was unable to take a decision (on the merger proposal) due to the request expressed by representatives of the French state to postpone the vote to a late council.”

The proposed merger called for FCA, which also controls the Alfa Romeo, Maserati, Jeep, Chrysler and Dodge brands, and Groupe Renault to each hold a 50% stake in a newly formed company, which would have combined sales of up to 8.7 million vehicles per year – third-largest in overall volume behind Volkswagen and Toyota.

According to French media reports, the only Groupe Renault board members who did not vote for the deal were the French state and a Groupe Renault union representative. Representatives of the Nissan brand, which is owned by Groupe Renault, abstained from the vote.

The collapse of the merger talks leaves FCA and Groupe Renault facing an investor revolt.

The two automakers had told investors a merger would reduce costs by up to $5.6 billion or more per year. As part of the proposed deal, FCA stood to gain access to Groupe Renault’s electric-vehicle technology, while Groupe Renault would have benefited from access to FCA’s truck and SUV know-how through its Jeep, Ram and Dodge brands in North America.

It is unclear what the two automakers will do next. FCA has confirmed it held inconclusive talks with Groupe Renault rival PSA Group, parent company to Peugeot, Citroen and Opel. However, like Groupe Renault, it also has a French government shareholding.

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