By Laurence Frost and Giulio Piovaccari
PARIS/MILAN (Reuters) - Talks on Fiat Chrysler's proposed merger with Renault (PA:RENA) became mired in politics on Monday, as France sought more concessions to maintain government influence over the new carmaker's management and French assets, sources told Reuters.
Italian-American FCA is in negotiations with Renault and its biggest shareholder, France, over the $35 billion merger proposal it pitched last week to create the world's third-biggest carmaker.
France, which owns 15% of Renault, has broadly welcomed the deal on condition it safeguards domestic jobs and plants - but political sensitivities have only increased as talks progress.
John Elkann, scion of the Agnelli family whose Exor holding controls FCA via a 29% stake, has sought to placate the French and Italian governments, while also keeping shareholders including Renault's alliance partner Nissan on board.
The FCA 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.
Responding to criticism from some analysts and French industry leaders that the deal undervalued Renault and its 43.4% stake in Nissan, Paris pushed for better terms.
The approach bore fruit over the weekend, as FCA discussed a Renault dividend and stronger job guarantees among concessions designed to secure France's support.
They include a Paris headquarters for the combined carmaker's Europe, Middle East and Africa region and its global chief executive, current Renault Chairman Jean-Dominique Senard, as well as a seat on the board for the French state, people with knowledge of the matter said.
As the two sides appeared to be converging on a deal, with the Renault board meeting on Tuesday, President Emmanuel Macron's government upped its demands, two people close to the negotiations said.
The government is now pushing for a significant board presence on the French subsidiary that would oversee Renault assets and plants, the sources said - as well as an effective veto on future CEO appointments after Senard, who is 66.
French officials want to be able to ensure that the job guarantees and "merger of equals" philosophy underpinning the deal are respected, sources close to the Renault board said.
Renault, FCA and the French government all declined to comment on the ongoing negotiations.
As officials, bankers and lawyers were absorbed in what may be a final deal push, Finance Minister Bruno Le Maire was jeered on Monday by some of the 1,044 former Alstom (PA:ALSO) workers being laid off by General Electric (NYSE:GE) - which had promised to safeguard their jobs when it acquired the business in 2015, along with their plant in Belfort, eastern France.
"It's understandable that the French government is pushing here and there, but FCA probably isn't ready to re-open the whole deal," one source close to the tie-up talks said. "If it drifts back towards a quasi-French nationalized business, things may start to fall apart."
In Italy, where the government has consistently said it supports the deal, Deputy Prime Minister Matteo Salvini's right-wing League Party expressed annoyance with the French position.
France should sell its Renault stake to meet EU deficit limits rather than seek more influence, the party's economics spokesman Claudio Borghi said. "By what right, in the Europe of liberalism and privatizations, can the French state negotiate seats on the board of a car company?"
FCA and Renault have also stressed they want to preserve the Renault-Nissan alliance - already strained by the arrest and ouster of chairman Carlos Ghosn, who is now facing trial in Japan on financial misconduct charges he denies.
Nissan CEO Hiroto Saikawa said on Monday the carmaker would conduct a "fundamental review" of its relationship with Renault if its tie-up with FCA went through. However, he conceded that FCA's arrival could bring "opportunities for further synergies".
The claimed 5 billion euros ($5.6 billion) in cost and investment savings would depend partly on FCA access to technology jointly owned by Nissan, executives acknowledge.
Renault had no comment on Saikawa's statement, company spokesman Frederic Texier said. But a source close to the French carmaker's board said it could have been worse.
"If you want to say no, you say no," he said.