Fiat Chrysler withdrew its merger offer with Renault SA on Wednesday evening after talks crumbled amid tense negotiations with the French government, according to sources familiar with the discussion.
The Italian-American company initially proposed the combination due to the complementary nature of the two businesses. Fiat has best-selling brands like Jeep and the Ram pickup truck, while Renault has surged ahead in the production of emissions-free and self-driving vehicles.
The talks between the two companies began in private earlier this year and accelerated when Fiat submitted a proposal in late May. Negotiations broke down quickly, however, after representatives for the French government on Fiat’s board began making escalating demands, sources tell FOX Business.
The firms had intended to release an update this week that talks were progressing.
“If it’s this hard to get through the agreement, what’s this going to be like over the next five years? The risks associated with that simply became too great,” one source said.
In a statement, Fiat alluded to the dispute and said it “has become clear that the political conditions in France do not currently exist” for the deal. The company declined to comment beyond the statement.
The French government, Renault’s top shareholder, reportedly raised concerns over how the merger would align with the carmaker’s long-standing alliance with Nissan. Representatives for the Japanese manufacturer were planning to abstain from the merger vote, according to the Wall Street Journal.
A source with knowledge of the ongoing talks disputed the notion that Nissan posed a challenge for the deal. Both Renault and Fiat were convinced that the company was open to the potential opportunities with the transaction, they said.
In a statement, Renault said it was “gratified by the constructive approach of Nissan.”
“We view the opportunity as timely, having compelling industrial logic and great financial merit, and which would result in a European based global auto powerhouse,” the company wrote.
A Renault spokesman did not immediately respond to a FOX Business inquiry as to whether the French government played a role in the breakdown in talks.
On Thursday, France Finance Ministry said the companies still “needed to obtain Nissan’s explicit support,” but noted that Renault has “all the assets to meet the challenges facing the automotive sector,” according to the Journal.
Hanging over the merger was the arrest of Carlos Ghosn, who served as chairman and CEO of the alliance between Renault, Nissan and Mitsubishi and was accused of using Nissan funds for personal matters. His wife, Carole Ghosn, told CNBC the charges were part of a conspiracy to avoid a merger between Nissan and Renault.
For its part, Fiat remains open to future merger proposals, but is confident its existing strategy will allow it to continue independently, a source close to the company said.
The carmaker said previously it would spend $4.5 billion to build a new plant in Detroit and expand production elsewhere in the state, an investment expected to create 6,500 new jobs.