PSA-Fiat Chrysler: a belly dance that lasted months – Les Échos

Code names: "Stella" for PSA, "Paris" for Fiat Chrysler. The
Announcements announced Thursday

    In the early morning, there was serious backstage since the beginning of October. It was at this point that the two groups, who had been looking around for months – if not years – foresaw that the possibility of a "deal" was beginning to take concrete shape. "Suddenly, the planets are aligned," breathed a source familiar with the discussions.

It will then take another three short weeks to reach this long meeting, a Sunday evening in the Paris region, during which Carlos Tavares and John Elkann have topped there. The CEO of PSA, and the leader of the Agnelli family, which owns 29% of the Italian-American manufacturer through its holding company Exor, have exchanged long not only the final details of the transaction, but especially their vision of the future of the new giant they are about to create. Number four in the sector with 8.7 million cars sold, 170 billion euros in sales, and 410,000 employees worldwide.

Virtually perfect fiances

It took adventures and twists to get there! And working hours for the bankers consulting, Messier Maris & Associates (Mediobanca), Citi and Morgan Stanley PSA side, D'Angelin & Co and Goldman Sachs side FCA, with Lazard and Alain Minc to support John Elkann and Agnelli, while Zaoui & Co assisted the Peugeot family.

Because in reality, the idea of ​​a rapprochement between the two family groups is not new. PSA, too small and too European, needs a partner at a time to diversify geographically and to increase its volumes, in order to amortize the expensive investments needed in the technologies of the future. FCA for its part has not really invested in its future: neither in the renewal of its range, nor in its greening. He must absolutely join forces.
On paper, the fiancees agree perfectly.

    They already know each other well, thanks to their longstanding partnership in utilities.

From the beginning of 2019, the two manufacturers begin to evoke a more serious rapprochement, under the benevolent eye of the French state which holds 12% of the group in Lion. Carlos Tavares and Mike Manley, the operational boss of FCA,
take advantage of the Geneva Motor Show in March to discuss the subject

   . The approach is more insistent, things get serious. Teams rely on working groups established in previous months to assess potential synergies. "The work was then done very seriously," says a former boss of the sector.

Successive twists

Yet, on a beautiful May night, the scenario of a big wedding crumbles. John Elkann invites Robert Peugeot, the representative of the family, to dinner and tells him that it's finally
with Renault he wants to convoler

   . With its alliance with Nissan and Mitsubishi – and their 10 million vehicles together, the Losange is in his eyes a fiancé of better quality.
Carlos Tavares sees red

   . The note he wrote then, to explain how this union would be detrimental to Renault, goes around Paris.

Ten days later, another rebound: the project of
Renault-FCA marriage runs short

   , lack of an immediate and explicit agreement of the Nissan ally. At PSA hope returns. Carlos Tavares is again trying his luck, especially during the summer. But the discussions do not succeed. Then the brutal eviction of Thierry Bolloré, at the beginning of October, closes the possibility of a Fiat deal with Renault for several months. "In the automobile there are shooting windows not to be missed when you have to renew your range. Fiat could not afford to wait, "says a good connoisseur of the file.

The principle of a 50/50 fusion is recorded. The Peugeot are convinced to see the Agnelli own more than twice as much in the new set: 14.5% against just over 6%. The adopted governance (6 of the 11 seats on the board appointed by PSA – including Carlos Tavares) satisfies them. "The family is above all committed to the sustainability of the group, it has always declared
ready to support a PSA offensive

   ", Says another source. "Carlos Tavares will be free to choose his executive committee. The Peugeot will have an active role on the supervisory board, and the possibility to buy 2.5% of the capital to other stable shareholders, bpifrance and Dongfeng. The family has the means: PSA represents "only" 2 of 5 billion euros family holding FFP, which also has debt capacity.

Control premium and drop of course

There remains the question of valuations. The price of PSA has gained 45% since the beginning of the year: the tricolor builder is worth much more on the stock market than his future spouse (22 billion euros against 19, just before the announcement). Difficult, in these conditions to proceed to a 50/50 merger. Especially since the shareholders of FCA are not against the payment of a super dividend, prior to the transaction … It is at this point that the negotiations have met in recent months. PSA finally yields: its shareholders will pay a control premium to acquire Fiat Chrysler.

Both groups
will make distributions to their shareholders prior to the merger

   but that of FCA (5.5 billion in the form of a cash dividend) will be greater than that of PSA (around 3 billion in the form of Faurecia shares). "We even accentuated the valuation difference and increased the premium to pay! "Says a financial analyst. PSA shareholders have also not reacted very well: the share price of the tricolor manufacturer plunged more than 12% on the day of the announcement, while FCA climbed on its side by 9%. "The market has rebalanced valuations, around 50/50, that's normal. The set has also earned a little value, "says a banker. The price of PSA is also recovered by nearly 3% Friday.

In parallel with the latest work that will lead to the drafting of a "Memorandum of Understanding" in the coming weeks, another project was launched: that of the name of the new group. "It has not been chosen yet, it will have to be neutral," says an actor. What give some migraines to the protagonists of the big wedding announced.

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