The merger will provide enough financial flexibility and ample headroom both to invest in new technologies and pursue strategic market growth and expansion
Fiat Chrysler Automobiles (FCA) and Peugeot SA (PSA) have announced a 50-50 merger of their businesses, to create the world’s third largest car manufacturer by revenue and the fourth largest by automobile sales.
Fiat Chrysler is the group behind popular brands such as Jeep, Ram, Alfa Romeo and Dodge. It was the eighth largest automobile group in the world last year, selling a total of 4.65 million vehicles. Putting together Peugeot’s sales of 3.88 million cars, the new entity will surpass Honda, Ford, Hyundai and General Motors to occupy the fourth spot in the consolidated car segment.
The combined company, which will leverage FCA’s strength in North America and Latin America and Groupe PSA’s solid position in Europe will have annual unit sales of 8.7 million vehicles, with revenues of nearly AED 694 billion, recurring operating profit of over AED 800 billion and an operating profit margin of 6.6%, all on a simple aggregated basis of 2018 results. The merger will provide enough financial flexibility to both, to invest in new technologies and pursue strategic market growth and expansion.
The new group will also have much greater geographic balance with 46% of revenues derived from Europe and 43% from North America, based on aggregated 2018 figures of each company.
According to the agreement, PSA’s Carlos Tavares will be chief executive an initial term of five years, with John Elkann, of the Agnelli family that controls FCA, as chairman, the two companies said.
The announcement says that "With its combined financial strength and skills, the merged entity will be particularly well placed to provide innovative, clean and sustainable mobility solutions.” It added that the merger would create approximately AED 17 billion in annual run-rate synergies, owing to product, technology and platform-related savings as well as scale effects in purchasing. The deal is subject to shareholder and regulatory approval and is expected to be completed in 12 to 15 months.
The merger, which was confirmed at the end of October, had mixed reactions. While most business analysts welcomed the move, there were many who pointed out the risks of such a merger, saying that the combined entity would face stiff challenges in Europe and would have to shrink brands in order to revamp its portfolio and meet EU standards.
According to a report on Ft.com, FCA will pay an AED 26 billion special dividend to its shareholders, while PSA will distribute the 46% stake it owns in components supplier Faurecia to its investors. Each company also intends to pay out an AED 5 billion dividend, in order to balance the value of the two companies.
Upon completion, PSA shareholders will receive 1.742 shares in the new entity, while FCA investors will have one share each, the report said, while adding that there will be a lock-in period under which the group’s largest investors — the Peugeot family, Exor, BPI and Dongfeng, which has agreed to reduce its stake to 4.5% — must maintain their shareholding. In a letter to FCA employees, 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."