PARIS • Fiat Chrysler said it has abandoned its US$35 billion (S$47.8 billion) merger offer for Renault, blaming French politics for scuttling what would have been a landmark deal to create the world's third-biggest automaker.

A source close to the French carmaker's board said Fiat Chrysler made the move after France sought to delay a decision on the deal in order to win the support of Nissan Motor, Renault's Japanese alliance partner.

French government officials had pushed for Nissan to support the merger. Nissan had said it would abstain.

The French government, which owns a 15 per cent stake in Renault, had also pushed Fiat Chrysler for guarantees that France would not lose jobs, and for a dividend to be paid to Renault shareholders, including the government, people familiar with the talks said. Fiat Chrysler's original proposal offered no special dividend to Renault shareholders.

"It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully," Fiat Chrysler said in a statement issued early yesterday from London.

Renault, in a separate statement, said its board 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 meeting".

The collapse of merger talks leaves the two companies facing an array of issues, starting with the dismay of investors who bid up shares in both companies after Fiat Chrysler proposed a merger of equals just over a week ago. Shares of Nissan and Renault alliance partner Mitsubishi Motors Corp fell in early trading in Tokyo yesterday.

Fiat Chrysler had proposed that its shareholders receive a €2.5 billion (S$3.8 billion) special dividend as part of the merger, had it been completed.

The two companies told investors a merger would cut operating costs and investments by €5 billion or more a year. Fiat Chrysler stood to gain access to Renault's superior electric drive technology to meet mandates for zero-emission cars.

Renault would have had a share of the Italian-American company's lucrative Jeep sport utility vehicle and Ram pickup truck franchises.

It is not clear what the two companies will do next to tackle the costs of far-reaching technological and regulatory changes. Fiat Chrysler had held inconclusive talks with France's PSA Group, which also has the French government as a shareholder.

Fiat Chrysler said it "will continue to deliver on its commitments through the implementation of its independent strategy".

The sudden end to the merger talks came after midnight in Paris, after Fiat Chrysler and French government officials had reached a tentative agreement that cleared the way for Renault's board to consider moving forward, people familiar with the situation said.

Renault's previous alliance and cross-shareholding with Japanese automaker Nissan had loomed all along as a potential snag. Nissan chief executive Hiroto Saikawa met Renault chief executive Jean-Dominique Senard last week, and said he did not see "any particular negative aspect" to the proposed Fiat Chrysler-Renault merger.

But people familiar with the situation said last week Nissan executives felt blindsided by the merger proposal. A Nissan spokesman had no immediate comment.

Nissan had indicated that a full merger between Renault and Fiat Chrysler would significantly alter the structure of Nissan's cross-shareholding alliance with Renault and require a fundamental review of their relationship.

REUTERS