Fiat Chrysler and PSA formalize their merger – Les Echos

PSA and Fiat Chrysler confirmed, as planned this Thursday morning, their official engagement. The two groups announced in a statement "consider joining forces to build a world leader". On Wednesday, they had met their respective councils, which mandated their teams to finalize the discussions and conclude a "memorandum of understanding" in the coming weeks. The social partners had also been convened for an extraordinary meeting early Thursday morning.

The two groups will proceed to a 50/50 merger through an exchange of shares: the new entity will be held equally by the shareholders of both groups. Carlos Tavares, current chairman of the PSA board, will become the new group's managing director for a minimum of five years, while John Elkann, leader of the Agnelli family and president of Fiat Chrysler Automobiles (FCA), will retain the Presidency.

The Board will have 11 members, including six from PSA (including Carlos Tavares) and five from FCA. The head office of the new entity will be established in a neutral country, the Netherlands, while the three operational headquarters will remain based in France, Italy and the United States.

Synergies are estimated at 3.7 billion euros, with no plant closures, the statement said. Some 80% of them will be reached in the fourth year.

Balance of capital and governance

To rebalance the respective valuations of the two groups and achieve a 50/50 merger, they will undertake several operations. PSA will distribute to its shareholders its Faurecia shares (46% of the capital of the equipment manufacturer, valued at approximately € 3 billion), while FCA will distribute to its shareholders an exceptional cash dividend of € 5.5 billion.

So far, the negotiations had stumbled on issues of balance of capital and governance, none of the two families, Peugeot and Agnelli, being really ready to let the other become predominant in the new set. However, the Agnelli hold much more in "their" constructor than the Peugeot: 29% approximately, against 12.2% of the capital (and 19.3% of the voting rights) for the French.

Majority participation of the Agnelli family

Encouraged by favorable governance, the Peugeot family finally dropped the ball on this point: the participation of the Agnelli family will remain higher than that of Peugeot (between 14.5%, against a little over 6%). Double voting rights will be reset. The main shareholders of the new group (families, but also the French State via bpifrance and Chinese Dongfeng, who hold a participation identical to that of the Peugeot family) will be held by a clause of "stand still" for seven years, their prohibiting the sale of their securities without the consent of others. The shares can not be sold for three years, with the exception of the Peugeot family, which will be able to buy 2.5% of it for three years from bpifrance or Dongfeng.

From Thursday morning, Bercy "welcomed" the entry into negotiations of both groups. "This operation would provide both groups with the size necessary to carry out the necessary investments" in the sector, says Bercy in his statement. Reiterating the attention paid by the government to "the preservation of the industrial footprint in France, the location of decision centers, and the commitment of the new entity to the creation of a European battery industry".

Number 4 worldwide

The operation would give birth to a new giant of the automobile which, with 8.7 million vehicles sold between them and 184 billion euros of turnover, would become number 4 worldwide of the sector, behind Volkswagen, Toyota, and the Renault-Nissan-Mitsubishi Alliance. Thanks to its 14 brands, including five from PSA (Peugeot, Citroën, DS, Opel and Vauxhall) and nine from FCA (Fiat, Chrysler, Alfa Romeo, Jeep, Abarth, Lancia, Maserati, Dodge), it would be present on all the automotive range, from basic to luxury. The two groups are also very complementary in geographical terms.

"This is a very nice operation, very logical for both groups … much more than was a marriage with Renault," says a senior executive of the sector. After several attempts to merge with PSA,
John Elkann ended up turning to Renault

    last spring … but
the deal had flipped

    in extremis without the agreement of Nissan partner, much to the chagrin of the president of Renault, Jean-Dominique Senard. While the priority within the Diamond is now to revive the Alliance, the Agnelli have therefore found it better to find another partner.

There is urgency: FCA, which has not invested enough in the renewal of its range or in its electrification, absolutely needs a partner to ensure its future. "There is no other possible than Renault or PSA! ", Analyzes a good connoisseur of the sector. For
PSA, who is in great shape

   is the perfect opportunity to break out of its status as a regional builder, and to cushion its investment in technology. The announcement has certainly boosted the two groups on the stock market: + 4.5% for
PSA

   , and + 9.5% for
FCA

    in the day of Wednesday.

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