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New Merger Between Automobile Companies Announced

A merger between two car giants has seen the world’s fourth largest carmaker formed with both companies agreeing that the new company will have the “leadership, resources and scale to be at the forefront of a new era of sustainable mobility.”

France’s PSA, who own Peugeot, and Fiat Chrysler have agreed a deal that would create a combined revenue of $189 billion. Both companies confirmed their “combination agreement” would enable them to invest more in new technologies as well as enable them to become an industry leader.

Each company’s shareholders will own 50 percent with the deal believed to be reshaping the automobile industry thanks to the current revolution and further investment into developing self-driving vehicles as well as electric systems. Currently FCA are working on an electric version of the Fiat 500 while the PSA Group are launching several EVs including the Vauxhall Corsa-e and the Peugeot e-208.

The new corporation will have a combined operating profit of over $11 billion with a workforce of 400,000 around the world and 8.7 million automobile sales, meaning the company will be bigger than Hyundai-Kia and General Motors, while in Europe they would outsell long-standing Volkswagen, who has dominated sales.

Currently the company believes to make annual cost savings of $4.1 billion while there has been confirmation that no plants will have to close.

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However the stronger purchasing power will provide around 40 percent of the cost savings, with increased product, platform and technology investments equating for a further 40 percent. These savings together should create over $3 billion.

Before the announcement their market capitalizations mean the new company will be valued at over $45 billion.

Italy’s Agnelli family controls FCA and will keep John Elkann on as Chairman while Carlos Tavares of PSA receives a mandate of five years as chief executive officer and confirmed, “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.”

While the transaction is expected to be completed within the next 12 to 15 months. this is dependent on both companies’ regulatory clearances and their shareholders’ approval.

In October both companies confirmed they were in discussions of a merger resulting in shares increasing in PSA by 1.5 percent on Wednesday morning, though FCA’s stocks had not moved.

The portfolio of brands that both companies will bring to the table covers not only the mainstream sectors but also the premium and luxury segments. This means their brands will now include Alfa Romeo, Jeep and Dodge from FCA while PSA will bring Vauxhall, Citroën and Opel.

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And while North America will be generating around 43 percent of the sales the biggest market will be across Europe, which equates for 46 percent of all revenues. This backs up the announcement that PSA-FCA will be focusing on its core markets of North America, Latin America and Europe, although they will also “reshape the strategy in other regions.” The companies have both had difficulties in the Chinese market in recent history and it is believed the new entity will be shifting some focus there.

The deal was not always FCA’s first choice as they were in talks with French rival Renault, however they fell through earlier in the year. While PSA is looking at its second high-profile agreement in the last two years after they bought Opel-Vauxhall from General Motors of the US in 2017, bringing about a huge change to the corporation.

To ensure that the balance of value between the two companies is level, FCA will be paying a $6.12billion special dividend to their shareholders. However, PSA will be distributing their 46% stake in components supplier Faurecia to its investors.

FCA is also working on a separation of its equity in Italian robot-making company Comau. Both companies will also be paying out a $1.22 billion dividend and once the merger has been completed FCA investors will receive one share each while PSA shareholders will each receive 1.742 shares.

Jefferies analyst Philippe Houchois confirmed the final terms would be “slightly improved” for PSA shareholders while the shares will be listed in New York, Paris and Milan. There will also be a seven-year period in which the group’s biggest investors – BPI, Dongfeng (which has agreed to drop their stake to just 4.5% meaning they will not be able to have a seat on the board), Exor and the Peugeot family – must keep their shareholding.

While the new name of the company has yet to be announced, FCA Chief Executive Mike Manley confirms, “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.”