FCAU Fiat Chrysler Automobiles NV

By Nick Kostov in Paris and Ben Dummett in London 

Fiat Chrysler Automobiles NV and Renault SA have agreed to base the European headquarters of their combined operations in France, a measure aimed at winning French government support for a proposed merger between the car makers, according to people familiar with the matter.

The French government and Fiat Chrysler are still discussing a range of other concessions, including whether to guarantee Paris a seat on the merged company's board of directors, the people said. Meanwhile, Renault's board is poised to formally consider the Italian-American auto maker's offer. The French state, which owns 15% of Renault, has two seats on the French auto maker's board.

Fiat Chrysler would resist any demands from Paris that might weaken the rationale for a merger, according to a person familiar with the company's thinking. Reuters first reported the French government's demands late Sunday.

A person familiar with discussions about the merger said Fiat Chrysler's operational headquarters in Turin would retain their importance within the merged organization. Fiat Chrysler Chairman John Elkann, who is expected to be the new company's chairman, has his residence in Turin -- long seen as a guarantee for the company's Italian business.

The French government's active involvement in the deal making shows the political sensitivity of mergers involving big French companies at a time when President Emmanuel Macron is under pressure from antiestablishment opponents on both the right and the left. For the proposed auto merger, one sensitive issue is the location of management.

Fiat Chrysler's proposal called for the combined company to be legally domiciled in the Netherlands, leaving the location of the operational headquarters open. People familiar with the negotiations said an agreement is now in place to base the merged company's European operational headquarters in Boulogne-Billancourt, Renault's historic home on the outskirts of Paris.

Fiat Chrysler last week proposed a merger to Renault to create the world's third-largest auto maker by production, with a market value of about $40 billion. Renault directors are set to meet Tuesday afternoon near Paris to formulate their response to the proposal.

French Finance Minister Bruno Le Maire spoke several times with Mr. Elkann by phone on Friday, according to a ministry spokesman. On Saturday, Mr. Le Maire's chief of staff met with Mr. Elkann, and on Sunday the finance minister met with Renault Chairman Jean-Dominique Senard.

France's government sees merits in the deal, including the creation of a European auto-making powerhouse with a strong presence in the U.S., people familiar with the matter said. But Paris wants strong guarantees that French jobs and plants would be preserved, these people said.

French officials see the proposed merger as being easier to sell politically in France if at least some of their demands are accepted.

Fiat Chrysler said last week the merger would achieve EUR5 billion ($5.58 billion) in annual cost savings for the two companies. It said the savings didn't rely on job cuts and that no factories would be shut. The Italian government isn't a stakeholder in Fiat Chrysler but is still expected to seek guarantees on jobs and factories before any deal is reached.

The French government is pressing for a guaranteed seat on the board, and for the new group's chief executive, Mr. Senard, to have an agreed term of at least four years. Fiat Chrysler's proposal includes making Mr. Senard CEO of the joint company while Mr. Elkann would become nonexecutive chairman, but it doesn't fix the length of their terms.

Renault CEO Thierry Bolloré and his counterpart at Fiat Chrysler, Mike Manley, are expected to be named joint chief operating officers of the merged company, according to people familiar with the matter.

The French government has also asked that the merged company preserve Renault's alliance with Nissan Motor Co. and Mitsubishi Motors Corp. Nissan owns 15% of Renault, though it doesn't have any voting rights.

Nissan CEO Hiroto Saikawa said Monday that the proposed merger if realized would significantly alter the structure of Renault.

"This would require a fundamental review of the existing relationship between Nissan and Renault," Mr. Saikawa said. "Nissan will analyze and consider its existing contractual relationships and how we should operate business in the future."

A person close to Nissan cited intellectual property shared within the existing alliance as one of several matters requiring the Japanese auto maker's participation in discussions of Fiat Chrysler's merger proposal.

"If Nissan's at the table and discussing not just use of IP but also how the new alliance will work, how the new shareholder relationship will work, it could be feasible," the person said. "If Nissan's not at the table, I don't see how you're going to do it."

-- Eric Sylvers in Milan contributed to this article

Write to Nick Kostov at Nick.Kostov@wsj.com and Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

June 03, 2019 16:38 ET (20:38 GMT)

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