Fiat Chrysler Automobiles withdrew the proposal late Wednesday, citing "political conditions in France" after the French government, Renault's biggest shareholder, asked for five more days to review the deal and obtain support from Nissan.
The surprising collapse of a proposal to merge Fiat Chrysler and Renault weighed heavily on the companies' shares Thursday, with all sides casting blame for the unravelling of what had appeared like a done deal to create the world's third-largest automaker.
The French government, which is Renault's biggest shareholder, said it had asked for five more days to review a deal and to obtain support from Nissan, a longtime Japanese alliance partner.
Fiat Chrysler Automobiles instead withdrew its merger proposal late Wednesday, citing "political conditions in France."
Shares in Renault plunged 7.6% to 51.91 euros in early Paris trading, while Fiat Chrysler sank 2.8% to 11.35 euros on the Milan Stock Exchange.
Take it or leave it
The French government, which owns 15% stake of Renault, had placed four conditions on the deal - with Nissan's consent to the merger the outstanding question, according to French Finance Minister Bruno Le Maire.
A French government official was more direct, saying that Fiat Chrysler was at fault for the merger collapse, placing "massive pressure," to quickly take the offer or leave it.
The French official said France wanted to delay a vote until Tuesday to have more time to discuss it with Nissan, which had said it intended to abstain from any immediate vote. The official was not authorised to be named according to government policy.
Fiat Chrysler did not have an immediate response to the French government's version of events. In Tokyo, Nissan declined to comment.
Le Maire said that the French government's conditions for a final agreement were to complete the merger operation as part of the existing alliance between Renault and Nissan, preserve French jobs and factories, create governance respectful of the equilibrium between Renault and Fiat Chrysler and ensure participation in an electric battery initiative with Germany.
"An agreement had been reached on three of these conditions. It remained to obtain explicit support from Nissan," Le Maire said.
Nissan had expressed reservations about the deal.
Fiat Chrysler said in its statement that it remained "firmly convinced of the compelling transformational rationale of a proposal," noting it had been widely well-received in markets and in the industry and would have delivered benefits to all parties.
"However it became clear that the political conditions in France do not currently exist for such a combination to proceed successfully," the statement said.
"FCA will continue to deliver on its commitments through the implementation of its independent strategy."
Economies of scale
The Renault board had met on Wednesday evening for a second round of deliberations on the proposal for a 50-50 merger, which the carmaker said would save more than $5.62 billion (5 billion euros) per year in purchasing expenses and costs developing autonomous and electric vehicles.
The combined company would have produced some 8.7 million vehicles a year, more than General Motors and trailing only Volkswagen and Toyota.
The merger would have created a company worth almost $40 billion.
If Nissan had gone along, it would have created the world's biggest auto company.
Most analysts praised the proposed deal, saying each side bought strengths that covered up the other's weaknesses. Now, the two companies apparently must find a new way to address any shortcomings at a time when the auto industry is in the midst of a global sales slowdown and facing enormous expenses to develop future technologies.
Karl Brauer, executive publisher at Kelley Blue Book and Autotrader, said the quick failure was unfortunate, "though it's better than having it drag on for weeks or months and then fail. FCA clearly saw too many obstacles, primarily Nissan's reluctance."
Brauer said the merger talk was likely to have affected other boardrooms in the automotive industry, where tie-ups can lead to significant savings on investments in costly technology, especially as the industry faces the transition to electric powertrains and autonomous and semi-autonomous driving.
"A reassessment of partnership opportunities was likely initiated at every major global automaker in the past 8 days, and those assessments won't end with FCA's withdrawal from this deal," Brauer said.