PSA Group (UG.PA), the French owner of Peugeot, and Italian-American Fiat Chrysler (FCAU) said on Thursday that the boards of both companies had agreed to merge in an all-share deal to form an “industry leader” worth about $50bn (£38.6bn).
The merger, which the companies described as a “bold and decisive move”, would create the fourth-largest automaker in the world.
The announcement follows “intensive discussions” between the boards of both companies on Wednesday, when the firms first confirmed that they were considering the move.
Fears have been stoked about the future of Vauxhall — which PSA acquired from General Motors two years ago — in the UK. The company plans to make the next generation of its Astra car at Ellesmere Port in Cheshire, but that is dependent on the terms of the UK’s exit from the European Union.
Thursday’s statement from the PSA Group and Fiat Chrysler suggests that the French government, which owns about 15% of PSA, supports the deal.
“The lack of pushback by the French government may be down to assurances on job losses, which could well be bad news for car plants, outside of France and Italy, with the UK an obvious target,” said Michael Hewson, chief market analyst at Markets.com.
Fiat Chrysler in June withdrew its offer for a €33bn (£28bn) merger with Renault, after the French government — Renault’s largest shareholder — signalled that it did not support the deal.
The carmaker has long signalled that it believes consolidation to be necessary in the car industry, which is contending with trade war headwinds and the rise of the climate change movement.
But neither company has a significant presence in China, nor have they built robust businesses in the electric car market.
Shares in PSA Group fell by 9% on Thursday, more than reversing the gains they made on Wednesday. Reports of the merger talks first emerged late on Tuesday.
Shares in Fiat Chrysler climbed by 9% in Milan.
“It’s not hard to understand this reaction when you consider the job done by Peugeot management over the last five years, while Fiat Chrysler management have overseen a tired product line and little in the way of innovation, in response to the challenges that are facing the sector as a whole, which include, but aren’t confined to, electric and driverless cars,” said Hewson
Shareholders in each company would each own 50% of the newly combined group, which will be formed under a Dutch parent company that will be listed on the Paris, Milan and New York stock exchanges.
The combined company would have annual sales of around 8.7 million vehicles, and would be valued in the $50bn to $55bn range, according to analysts.
The company would continue to maintain “significant presences” in France, Italy, and the US, the companies said.
PSA CEO Carlos Tavares said on Thursday that the deal “brings significant value to all the stakeholders and opens a bright future for the combined entity.”
Mike Manley, the CEO of Fiat Chrysler, said that he believed the merger to be a “potentially industry-changing combination”.