Renault SA (RNLSY) shares plunged to the bottom of the European market Thursday after rival Fiat Chrysler Automobiles NV (FCA - Get Report) pulled out of a planned $35 billion merger amid accusations of meddling by the French government.
Fiat said "political conditions" in France meant the proposed tie-up could no longer progress, and vowed to continue its long-running turnaround first put in place by the now deceased former CEO Sergio Marchionne. France's Finance Minister, Bruno Le Marie, dismissed suggestions of interference by the French government, which owns a 15% stake in Renault, and said talks failed because the group was unable to win support from its current alliance partner Nissan Motor Co., one of the four conditions put in place when the tie-up was announced last month.
"FCA remains firmly convinced of the compelling, transformational rationale of a 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," the company said in a statement. "However it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully."
Renault shares were marked 6.6% lower by mid-day of trading in Paris and changing hands at €52.50 each, while Fiat Chrysler shares edged 0.35% higher in Milan to €11.75 each.
Fiat did something GE's Immelt didn't know how to do when bargaining with the French: Walk Away— Jim Cramer (@jimcramer) June 6, 2019
A statement on Renault's website, however, seemed to at least partially support Fiat's contention, with the company saying its board of directors was "was unable to take a decision due to the request expressed by the representatives of the French State to postpone the vote to a later Council."
Le Marie said last month the government would need four guarantees in order to support the proposal, which would create a 50-50 ownership structure while reducing the French government's stake to 7.5%, including board representation, jobs and industrial sites protections and the support of Nissan. Reports also said the government had pushed of a special dividend for both itself and the broader Renault shareholder base.
Fiat Chrysler, which is controlled by Italy's powerful Agnelli family, was looking to combine with Renault in a game-changing deal that would allow it to lever its foothold in the U.S. market with the French automaker's strengths in Europe and its early-mover advantage in electric vehicle production.
Renault, for its part, could find entry into the US while at the same time extracting itself from the now-combative tie-up with Japan's Nissan Motor Co. following the arrest of former CEO Carlos Ghosn last year in Tokyo amid allegations of financial misconduct.
Carmakers around the world are also facing the uncertain prospects of tariffs on imports into the United States, which President Donald Trump has threatened under national security legislation, and a precipitous plunge in demand from customers in China, the world's biggest car market, where sales fell to the lowest level in three decades last year.
New emissions regulations, as well as intense competitive pressures from clean-energy rivals such as Tesla Inc. (TSLA - Get Report) and ride-sharing upstarts such as Uber Technologies (UBER) and Lyft (LYFT) , has left traditional automakers with little choice but to seek out opportunities to both scale up their production rates, open doors to new markets and find billions in cost savings to protect their shrinking bottom lines.
The proposed deal would not only have created a $35 billion automaker capable of making 8.7 million cars a year, putting it in third place behind Germany's Volkswagen AG (VLKAY) and Japan's Toyota Motor Co. (TM - Get Report) , but it would also represent an enormous challenge to likes of General Motors (GM - Get Report) and Ford Motor Co. (F - Get Report) in the global drive to establish market leadership in clean-energy vehicle and battery production.