Fiat Chrysler and France’s PSA, the owner of Peugeot, have struck a merger deal to create the world’s fourth-largest carmaker at a time of sweeping change in the auto industry. The two companies said they had signed a binding combination agreement in a deal likely to attract the scrutiny of competition regulators in Brussels.
Shareholders of each group would hold 50 per cent in the new entity, which will have revenues of €170bn, a combined workforce of about 400,000 and the ability to invest in new technologies set to define vehicles of the future. Its sales of 8.7m vehicles a year will put the merged entity ahead of General Motors and Hyundai-Kia.
The deal will reshape the automotive sector, which is undergoing a period of transformation not seen since the advent of the first mass-produced cars in the early 20th century. Massive expenditure is required to develop electric vehicles and self-driving systems, as automakers come under regulatory pressure — particularly from the EU — to cut exhausts emissions in the fight against global warming.
The tie-up comes after a proposed merger of FCA with rival Renault collapsed earlier this year, which the French carmaker blamed on its own government. PSA’s Carlos Tavares will be chief executive on an initial mandate of five years, with John Elkann, scion of the Italian Agnelli family that controls FCA, as chairman, the two companies said.
“This is a merger between two healthy companies [that] are highly profitable,” said Mr Tavares. “We have to leverage the strength of both companies to make a new car company even more competitive.” Based on their current market capitalisations, the new entity would have an equity value of about €41.1bn.
Despite targeting annual cost savings of around €3.7bn, PSA and FCA said no plants would close as a result of the merger However, Mr Tavares and FCA boss Mike Manley refused to say where redundancies might fall. Ferdinand Dudenhöffer, from the CAR-Center Automotive Research at Universität Duisburg-Essen, said PSA’s Opel unit would be the “loser” in the merger and predicted at least 10,000 engineering job losses overall.
“Opel’s role in the new group will become weaker. [It will have to] fight alongside mass-market brands Fiat, Citroën and Peugeot for the same customers,” he added. With a portfolio of brands covering the luxury, premium and mainstream passenger car segments, the new group’s marques will include Citroën, Opel and Vauxhall from PSA, with FCA contributing Jeep, Dodge and Alfa Romeo. The announcement comes after the companies confirmed at the end of October that they were pursuing merger talks. While the move was broadly welcomed by analysts, some flagged risks.
“It is very clear that especially in Europe, the combined entity will face massive challenges, including finding cost savings and shrinking the number of brands, in order to be able electrify its portfolio and meet EU standards,” said Arndt Ellinghorst of Evercore ISI.
Max Warburton of Bernstein said: “This is an industry where M&A has a poor record and where cultural clashes are common, causing investors to be cautious about the prospects of big deals. “But we believe there will be less dancing around, less cultural impediments and fewer stupid power games than we’ve seen in many auto sector deals.”
To balance the value of the two companies, FCA will pay a €5.5bn special dividend to its shareholders, while PSA will distribute the 46 per cent stake it owns in components supplier Faurecia to its investors. Each company also intends to pay out a €1.1bn dividend.
Upon completion, PSA shareholders will receive 1.742 shares in the new entity, while FCA investors will have one share each. There will be a seven-year standstill under which the group’s largest investors — the Peugeot family, Exor, BPI and Dongfeng, which has agreed to reduce its stake to 4.5 per cent — must maintain their shareholding.
PSA and FCA said they expected the transaction to complete within 12 to 15 months, subject to shareholder approval and regulatory clearances. Shares in PSA gained 1.5 per cent while FCA’s stock remained flat. In a letter to FCA employees, Mr Elkann wrote: “[W]e are joining forces to write a new, even more ambitious chapter in the history of the automobile, committed to building a great company eager to play a decisive role in shaping this new era.”