UPDATE 1-FCA-Renault tie-up clears French hurdles before board meeting -sources

Fiat Chrysler has resolved key differences with France over its proposed merger with Renault, three sources told Reuters on Tuesday, as the French carmaker's board met to review the $35 billion tie-up plan. The compromise on French government influence over a combined FCA-Renault may clear the way for Renault directors to approve a framework agreement and begin the long process of a full merger unless new issues surface at their meeting.

France, Renault's biggest shareholder with a 15% stake, had been pressing for its own guaranteed seat on the new board and an effective veto on future CEO appointments. But after late-night talks with John Elkann, the Italian-American carmaker's chairman, officials approved a compromise giving the French government 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 appointment committee to the French state, they said. With Renault chairman Jean-Dominique Senard, 66, set to become FCA-Renault's first operational chief under Elkann's chairmanship, the move gives France a formal say on the appointment of his successor.

Renault, FCA and the French government, which have been locked in talks over the offer pitched by FCA to create the world's third-biggest carmaker, declined comment. 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.

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. This bore fruit over the weekend, as FCA discussed concessions including a dividend to Renault shareholders, stronger French job guarantees and a Paris-based regional headquarters for the combined group.

JOB UNDERTAKINGS FCA and Renault shares rose on the news of the board compromise and were up 4.5 percent and 5.2 percent respectively at 1240 GMT.

"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 at 1300 GMT, 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. Nissan's two Renault board representatives are expected to abstain in any vote on Tuesday, sources at both companies said, a day after the Japanese carmaker's CEO Hiroto Saikawa warned that the proposed merger would trigger a "fundamental review" of its relationship with Renault.

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.

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