Fiat Chrysler and Peugeot agree to pursue giant auto merger
France’s PSA, which owns Peugeot, and Fiat Chrysler have agreed to pursue a merger that would create the world’s fourth-largest carmaker and reshape the automotive sector.
PSA and FCA said their boards had agreed to “work towards” a tie-up that would give shareholders of each group 50 per cent ownership in the new entity.
The deal would create a company with revenues of €170bn, recurring operating profit of more than €11bn and combined vehicle sales of 8.7m, putting it ahead of General Motors and Hyundai-Kia in sales. In Europe, the company’s sales would even outpace Volkswagen, which has historically dominated the region’s industry.
At current market prices, the combined entity is worth just under €43.4bn.
FCA shareholders will receive a €5.5bn cash payout and proceeds from the sale of its robot-making Comau unit, estimated at between €200m and €300m.
The two companies intend to forge a 50-50 all-stock merger in which PSA chief executive Carlos Tavares runs the business and FCA chairman John Elkann — the scion of Italy’s Agnelli family, which controls FCA — becomes chairman. Mr Tavares would have an initial mandate of five years.
FCA on Thursday disclosed it made a net loss of €179m last quarter, because of a €1.4bn impairment over its European and Alfa Romeo businesses. Stripped out, the company made €1.3bn of profit, including record profits and margins in its North American heartland.
Approximately €3.7bn in estimated annual synergies are targeted, 80 per cent within the first four years, “without any plant closures resulting from the transaction”. The total one-time cost of achieving the synergies is estimated at €2.8bn, added the statement.
Analysts at UBS applauded the deal, as PSA seeks to increase its exposure to new regions, such as North America, while “FCA has the highest risk of not meeting the CO2 targets, potentially paying fines as a consequence” and “PSA could transfer its power-train technology at a highly competitive cost by leveraging its experience with Opel.”
PSA bought Opel-Vauxhall from General Motors in 2017 and has presided over a dramatic turnround at the carmaker.
Nov. 1, 2019