FCA-Renault bid clears French hurdles as board meets, report says

FRANKFURT/PARIS -- Renault directors were preparing to review Fiat Chrysler Automobiles' $35 billion merger offer on Tuesday, after the automaker resolved differences with the French government overnight, three sources said.

The compromise on French government influence over a combined FCA-Renault may clear the way for Renault's board to approve a framework agreement beginning the long process of a full merger, unless new issues surface at the meeting.

France, Renault's biggest shareholder with a 15 percent stake, had been pressing for its own guaranteed seat on the new board and an effective veto on CEO appointments.

But after late-night talks with FCA Chairman John Elkann, the French government has accepted a compromise that would see it occupy one of four board seats allocated to Renault, balanced by four FCA appointees, the sources said.

Renault would also cede one of its two seats on a four-member CEO nominations committee to the French state, they said.

Renault, FCA and the French government all declined to comment on the discussions.

Renault is facing resistance from its alliance partner Nissan, Bloomberg reported.

Directors of Renault nominated by Nissan are expected to abstain from a vote on Tuesday, sources told Bloomberg.

Renault's path toward a deal with FCA was muddied on Monday by Nissan, which holds a 15 percent stake in the French automaker as part of their two-decade auto-making alliance.

Nissan CEO Hiroto Saikawa said the company needs to review the future of their partnership, including contractual relationships, in light of Renault's potential tie-up with FCA.

The proposal would see both carmakers acquired by a listed Dutch holding company owned 50-50 by current FCA and Renault shareholders, after payment of a 2.5 billion euro ($2.8 billion) special dividend to FCA shareholders.

The move would be expected to add scale to help the companies share costs and resources while tackling an expensive shift to electrification and autonomous driving.

While Nissan cannot block an FCA-Renault combination, Nissan could use its strong presence in China, Japan and the rest of Asia, as well as its electric-car technology, as leverage.

French Finance Minister Bruno Le Maire has said he wants any combination with FCA to come within the framework of the Franco-Japanese alliance, which also includes Mitsubishi Motors.

FCA and Renault shares rose on the news of the board compromise, and were up 4.5 percent and 5.2 percent respectively in European trading.

"The market has been worried that too much could be given away, and there's a price to be paid for execution risk," a source close to the negotiations said. "The more our hands are tied the harder it is to achieve meaningful synergies."

The possible dividend was still being discussed shortly before the Renault board convened earlier Tuesday, people close to the talks said. Firm undertakings on French jobs and sites as well as the Europe, Middle East and Africa headquarters site are likely to be worked out later in the process, they added.

The FCA-Renault talks are playing out amid a French public outcry over 1,044 layoffs at a General Electric site in Belfort, eastern France -- where the U.S. group had promised to safeguard jobs on acquiring Alstom in 2015.

"After the mess with GE, the government was determined to get binding agreements on jobs," a source close to Renault said. "And they will. The state has made itself heard."

Finance Minister Bruno Le Maire has also stressed that the FCA-Renault deal must preserve Renault's existing alliance with Nissan -- already strained by the arrest and ouster of former chairman Carlos Ghosn, who is awaiting trial in Japan on financial misconduct charges he denies.

Achieving 5 billion euros ($5.6 billion) in FCA-Renault synergies would depend partly on access to technology jointly owned by Nissan, executives acknowledge.

A Renault board decision to approve the merger proposal, subject to regulatory approvals and other conditions, would begin a process expected to last well into 2020.

FCA and Renault would aim to put the tie-up to shareholder votes in the first quarter, one source close to the talks said. 

Bloomberg contributed to this report