UPDATE 2- Fiat resolves differences with Renault over merger

Fiat Chrysler has resolved key differences with France over its proposed merger with Renault, three sources told Reuters, as talks on the $35 billion tie-up plan progressed towards a possible agreement on Wednesday. An emerging compromise over French influence on a combined FCA-Renault could clear the way for Renault's board to approve a framework deal and begin the long process of a full merger.

FCA, Renault and its 15% shareholder, the French state, have been locked in talks over the Italian-American manufacturer's bid to create the world's third-biggest carmaker. France has broadly welcomed the deal, on condition it guarantees Renault's domestic blue-collar jobs and plants. Renault's board adjourned after a three-hour meeting on Tuesday and agreed to meet again in 24 hours after more negotiations.

Its directors will "continue to study with interest the opportunity of such a combination", Renault said in statement. FCA's proposal would see both companies 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.

Following analysts' and French industry leaders' criticism that the bid undervalued Renault and its 43.4% stake in partner Nissan, Paris pushed for better terms. The deal on the table now includes a special dividend for Renault shareholders, likely in the range of 250-500 million euros, two sources told Reuters.

According to agreed "general organizational principles" seen by Reuters, the new group's CEO office and headquarters for its Europe, Middle East and Africa region would be sited in Paris. Concerned about the enforceability of job guarantees, France has also been demanding its own seat on the new board and a veto on future CEO appointments.

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. The U.S. corporation had promised to safeguard jobs there when it acquired 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."

On Tuesday French officials approved a compromise allowing the government to occupy one of four board seats allocated to Renault, balanced by four FCA appointees, three sources said. Renault would also cede one of its two seats on a four-member CEO appointment committee to the French state, they added. But FCA is resisting its demands for a unanimity rule.

Shares of both carmakers rose after Reuters reported on the governance compromises. FCA shares were up 3.5% at 1943 GMT, after Renault closed 4.3% higher in Paris. Jean-Dominique Senard, the Renault chairman set to become FCA-Renault's first CEO under Elkann's chairmanship, turned 66 in March, and France is keen to have a say on his succession.

"It's not enough to talk about non-closure and job conditions," one official said. "We need to be equipped to uphold them." French Finance Minister Bruno Le Maire has stressed that the deal must preserve Renault's alliance with Nissan, already strained by the arrest and ouster of former chairman Carlos Ghosn, now awaiting trial in Japan on financial misconduct charges he denies.

Nissan's two Renault board representatives may abstain in a vote on the deal, after the Japanese carmaker's CEO Hiroto Saikawa said it would prompt a "fundamental review" of the 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. 

(With inputs from agencies.)