When business negotiations fail to consider outside interests, deals can fall apart quickly. Automakers Renault and Fiat Chrysler discovered this in 2019 during their ill-fated attempt at a merger.
Fiat Chrysler chairman John Elkann—whose grandfather, former Fiat chairman Gianni Agnelli, had handpicked him in his twenties to run the family business—made overtures to Renault CEO Jean-Dominique Senard. For both companies, the benefits appeared obvious. The combined company would overtake General Motors to become the world’s third-largest auto manufacturer by volume, after Toyota and Volkswagen. Amid a downturn in the European auto market, Renault would gain access to new international markets.
Both sides would save billions by buying supplies and components jointly and sharing development costs. And Elkann wanted to enfold Fiat Chrysler into a larger company to make it easier for him to diversify his family’s holdings.
Yet despite such apparent synergies, the M&A negotiation flamed out within a month. What went wrong? As we’ll see, the business negotiations failed to adequately account for the interests of other parties with a significant stake in the deal.
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Rocky Road
An understanding of why the merger fizzled out begins with Renault’s alliance with Nissan. In 1999, Renault bailed out a struggling Nissan to form a strategic alliance, in which the automakers share costs while maintaining their unique identities and markets. Mitsubishi and other automakers later joined the alliance.
But after Nissan rebounded, its CEO, Hiroto Saikawa, complained that the alliance’s ownership structure no longer made sense: Renault owned 43.4% of Nissan, while Nissan owned only 15% of Renault, despite selling more cars than Renault. This and other resentments came to a head when Renault’s then-CEO, Carlos Ghosn, tried to advance plans to merge Renault and Nissan. Nissan executives then reportedly tipped off Japanese prosecutors about alleged financial wrongdoing by Ghosn that led to his imprisonment, the Wall Street Journal reports. Ghosn was replaced by Senard.
Ghosn’s departure created new problems. He had learned to navigate Japanese corporate culture, which prioritizes consensus building and generally eschews direct confrontation, according to the Journal. Senard reportedly tried to “smooth things over,” according to the New York Times, but a Renault-Nissan merger appeared to be going nowhere.
So in May 2019, Senard was receptive when Elkann, whom he’d known for years, suggested a possible Fiat Chrysler–Renault merger, the Journal reports. The two agreed to try to get Renault’s board of directors to approve a deal before Renault’s general shareholder meeting on June 12.
Senard informed French president Emmanuel Macron about Fiat Chrysler’s overture toward Renault. The French government owns a 15% stake in Renault and would want its interests represented at the bargaining table, such as protections on French jobs. In a meeting with Senard, French economy and finance minister Bruno Le Maire said that any deal reached would need to be compatible with Renault’s alliance with Nissan.
Yet Renault held back from telling Nissan about its talks with Fiat Chrysler. If they joined forces, Renault and Fiat Chrysler would become “an even more overbearing partner” for Nissan, the Times reports. Unlike Renault, Fiat Chrysler competed with Nissan in the U.S. market. Renault’s leaders worried their Japanese counterparts might try to sabotage talks.
Lost in Translation
On May 26, Fiat Chrysler sent Renault a formal proposal for a fifty-fifty merger in which Senard would be CEO of the new company, Elkann would be its nonexecutive chairman, and Fiat Chrysler’s Agnelli family and the French government would have diluted stakes and voting powers, according to the Journal.
Only then did Renault’s Senard tell Saikawa, Nissan’s CEO, about the negotiations. Nissan executives felt blindsided and betrayed: Their company’s technology would be critical to the proposed combination, yet Nissan was being treated like an outsider, a source told the Times. Nissan wanted a seat at the negotiating table, yet it shared its concerns so subtly that they were “essentially lost in translation,” according to the Journal.
An Unacceptable Delay
On June 3, Nissan CEO Saikawa said the proposed deal would necessitate a “fundamental review” of his company’s alliance with Renault, a statement that alarmed the French government.
Two days later, the Renault board, which included a French government representative and two Nissan representatives, convened to discuss the deal. Fiat Chrysler had offered France concessions to address its concerns, including representation on the combined company’s board and a promise to base its European headquarters in France.
A majority of the board backed the deal, the Times reports, but Nissan’s representatives abstained from voting. Believing this was a sign of future opposition, the French government’s representative conferred with Le Maire. He then announced to the board that the finance minister was flying to Tokyo to discuss the merger with the Japanese government and needed a five-day delay on a final vote.
For Fiat Chrysler, this was a sign that the French government would be a meddlesome partner, according to the Times. Elkann emailed a letter to Senard: The deal was off.
In the press, the French government was criticized for trying to micromanage the deal. That accusation may be fair, yet France appeared to be the only party attuned to Nissan’s objections to a Renault–Fiat Chrysler tie-up. “The bride [Renault] was already in a committed relationship, which a watchful parent wanted to preserve,” the Journal wrote.
Lessons from Failed Business Negotiations
Here are negotiation tips from the Renault–Fiat Chrysler talks:
- Look beyond the parties at the table. Consider how business negotiation tactics could affect other interested parties—including existing clients, customers, and partners; government entities; and the public at large. Rather than viewing such parties as potential deal blockers, think about whether they might bring opportunities for value creation.
- Expect cross-cultural misunderstandings. A Renault–Fiat Chrysler merger would have resulted in a melting pot of American, Italian, French, and Japanese cultures. Cross-cultural business partnerships often prove disappointing, so prepare to manage different practices and communication styles during the implementation stage.
- Don’t minimize the effect of changes at the top. The departure of longtime leaders can open up new possibilities for business negotiations, yet their replacements may lack the know-how and relationships needed to get a deal done. A willingness to listen and learn will carry them
- Build flexibility into your deal. As Nissan and Renault changed over time, Nissan came to perceive the structure of their alliance as fundamentally unfair. The parties could have avoided such perceptions by building flexibility into their initial deal, such as allowing ownership in each other’s companies to fluctuate based on revenue. They might also have specified regular renegotiating periods to help their arrangement adapt and thrive over time.
What would you have done differently in these business negotiations?
Claim your FREE copy: Business Negotiation Strategies: How to Negotiate Better Business Deals
Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.
