Fiat Chrysler and Peugeot agree $50bn merger deal

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Logos of Peugeot and Fiat are seen in this illustration picture taken October 31, 2019. REUTERS/Regis Duvignau/Illustration

The boards of Fiat Chrysler (FCA) and Peugeot-owner PSA have officially agreed a deal to merge, forming the world’s fourth largest car manufacturer.

Both companies said Wednesday their boards had signed a binding agreement for a 50/50 merger of stock. PSA (UG.PA) shareholders will receive 1.742 shares in the new company for every PSA share they hold. FCA (FCAU) investor will get 1 share for every FCA share they own.

The deal, which is expected to take up to 15 months to close, will create a company with annual sales of €170bn, or 8.7m vehicles a year. Analysts estimated the combined group would be worth around $50bn.

Shares in PSA rose 1.5% in Paris. Shares in FCA were up 0.3% in Milan.

FCA and PSA said in a joint release that the combination would allow them to “address the challenge of shaping the new era of sustainable mobility.” The deal would lead to cost savings worth €3.7bn a year, the companies said, but both pledged not to shut any factories.

“Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility and to provide our customers with world-class products, technology, and services,” Carlos Tavares, chairman of Peugeot-maker PSA, said in a statement.

“I have every confidence that with their immense talent and their collaborative mindset, our teams will succeed in delivering maximized performance with vigor and enthusiasm.”

Tavares will serve as chief executive of the combined business for at least five years and will sit on the board.

Mike Manley, chief executive officer of FCA, said: “This is a union of two companies with incredible brands and a skilled and dedicated workforce. Both have faced the toughest of times and have emerged as agile, smart, formidable competitors."

FCA and Peugeot first confirmed merger talks in October and signalled that a deal would be done later that month.

Under the terms of the deal announced Wednesday, FCA shareholders will be paid a special €5.5bn dividend ahead of closing. PSA will also distribute its 46% stake in French parts supplier Faurecia to investors. Both companies plan to pay out dividends worth €1.1bn in 2020 before the deal completes.

The global automobile market has been experiencing a downturn in recent years, while research and development costs have risen as challengers such as Tesla push traditional players to move quickly towards electrification.

“The auto industry has undergone a significant amount of disruption over the last decade, from huge amounts of overcapacity to the challenges of electric and driverless cars, and that’s even before the fallout from the emissions scandal, which decimated the diesel market,” said Micheal Hewson, chief market analyst at CMC Markets.

FCA has long held ambitions to combine with a rival to share costs and diversify sales internationally. An attempt to merge with General Motors in 2015 failed and an attempt to merge with Renault (RNO.PA) earlier this year was blocked by the French government.

Shares in Renault fell 1.1% in Paris on Wednesday. Shares in Volkswagen (VOW3.DE), the world’s biggest car manufacturer, fell by 0.4% in Germany. Mercedez Benz-owner Daimler’s (DAI.DE) stock was down 0.3%.

FCA is known for brands such as Jeep, Fiat, Ram, Alfa Romeo, and Dodge. It makes the majority of sale in North America and Latin America. PSA owns brands including Peugeot, Citroen, Opal, and Vauxhall. The majority of its sales come from Europe.

Hewson said new combined CEO Carlos Tavares had “overseen a remarkable turnaround in the fortunes of the French car giant since he took over all the way back in 2014, when there was a real risk the company could well have gone to the wall.”

The combined group will employ over 400,000 people around the world. FCA and PSA did not mention if either had held talks with unions. The deal must also be approved by regulators around the world.

Shares in the combined group will be listed on the Euronext in Paris, the Borsa Italiana in Milan, and the New York Stock Exchange.