Fiat Chrysler, Peugeot owner reach binding $50 bln merger deal

FCA and France’s PSA expect the deal to close in the next 12 to 15 months. (File photo: Reuters)

Fiat Chrysler and Peugeot maker PSA have reached a binding agreement over a roughly $50 billion merger that will reshape the global car industry.

Europe’s second and third biggest automakers, which are yet to decide on a name for their new company, announced preliminary plans six weeks ago for a 50-50 all-share tie-up that will rank as the world’s fourth-largest automaker.

With a definitive agreement in place, the France’s PSA and Italian-American Fiat Chrysler Automobiles (FCA) will now start work on how to reach a target of cutting costs by 3.7 billion euros ($4.1 billion) each year without closing factories.

That will be all the harder with strong labor unions in both France and Italy worried about job losses.

There will likely be horse-trading over which research and development centers will survive and talks will center on which technologies will be embraced by the combined entity.

The firms said in a statement on Wednesday that they expected the deal to close in the next 12 to 15 months. They said they would come up with a name over the coming months.

The two sold a combined 8.7 million vehicles last year but have potential manufacturing capacity of 14 million vehicles, according to forecasters LMC Automotive.

The deal is aimed at helping both companies cope with slowing autos demand and the cost of building cleaner cars to meeting tougher emissions regulations.

The companies have yet to spell out precisely how they plan to tackle potential excess capacity, and which car platforms - or underlying structures of a vehicle - they will focus on, only detailing that a majority of production volume would be concentrated on two platforms.

“At this stage nothing is decided. We have been evaluating what the opportunities are,” PSA Chief Executive Carlos Tavares, who will head up the merged entity as CEO, told reporters.

PSA shares rose 4 percent in early trading, while FCA stock was up 1.7 percent.

SMOOTHING THE WAY

Before the merger is completed, one of PSA’s shareholders, China’s Dongfeng Motor Group, will trim its 12.2 percent stake in the French firm by selling 30.7 million shares to PSA.

That stake was worth 679 million euros ($748.4 million) at the most recent closing price, and Dongfeng will have 4.5 percent of the merged group. Its smaller stake is seen as helping the deal gain regulatory approval in the United States.

“This is the way of supporting this merger and making sure we don't have bumps on the road,” Tavares said.

PSA and FCA confirmed the new group would have an 11-strong board, with five members nominated by PSA and another five by FCA. These will include labor representatives from both.

Tavares, whose initial five-year term as CEO will begin once the deal has closed and gained all approvals, will have the additional seat on the board.

A shock lawsuit by General Motors (GM) filed last month against FCA in the United State over alleged union bribing did not affect the merger terms, FCA CEO Mike Manley told reporters, reiterating the claim was “meritless”.

Manley said he hoped FCA would “now dispose of that quickly” and if not, the company would defend itself vigorously.

Ahead of the deal closing, FCA will pay its shareholders a 5.5-billion-euro special dividend and hand investors its shares in robot-making unit Comau, which will be spun off.

Peugeot will distribute its 46 percent stake in auto-parts maker Faurecia to its shareholders, which was worth 3.2 billion euros based on Tuesday’s market value.

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Last Update: 09:30 KSA 12:30 - GMT 09:30
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