PSA and Fiat Chrysler unveil merger of equals

Peugeot-maker PSA and Fiat Chrysler unveiled Thursday their plan for a 50-50 merger that aims to create the world's fourth-largest car manufacturer but quickly came under pressure to preserve jobs. With automakers needing to cut costs as the global car market slows and at the same time investing heavily in developing cleaner vehicles, the French and US-Italian firms said their tie-up would generate 3.7 billion euros in annual savings.

The boards of PSA and Fiat Chrysler (FCA) backed the plan on Wednesday that would result in a company with combined sales of nearly 170 billion euros (USD 190 billion) per year and 11 billion euros of operating profits, with negotiations continuing to resolve all the details. The tie-up would leapfrog the carmakers into fourth largest in terms of sales behind Volkswagen, Renault-Nissan-Mitsubishi, and Toyota, and would combine a host of well-known brands from Alfa Romeo, Jeep and Dodge to Citroen, Opel and Vauxhall.

The boards of both carmakers "both share the conviction that there is compelling logic for a bold and decisive move that would create an industry leader with the scale, capabilities and resources to capture successfully the opportunities and manage effectively the challenges of the new era in mobility," said the statement. The merger would be achieved via the creation of a parent company in the Netherlands in which the shareholders of each current firm holding half.

The Dutch-based parent company would have balanced representation with FCA's John Elkann as chairman and PSA's Carlos Tavares as CEO and member of the board. While investors cheered when the automakers first confirmed their talks on Wednesday, with Fiat Chrysler shares rising nine percent in Milan and PSA shares adding four percent in Paris, the reception to Thursday's details was quite different.

PSA shares fell over 13 per cent while those in Fiat Chrysler jumped 8 percent in Milan. Daniel Larrouturou at asset management firm Dom Finance said the reaction of PSA shareholders was due to the fact that its market capitalisation is larger than that of Fiat Chrysler.

"With a 50-50 merger, Peugeot is technically buying Fiat and offering a bonus to its shareholders," he said. "The market is taking this into account and consequently adapting the share price." While the companies said a definitive deal could be reached in the coming weeks, a successful outcome is not guaranteed.

Fiat Chrysler tried to merge with PSA's French rival Renault earlier this year, but the deal was scuppered in part by opposition from the French government, which owns stakes in both PSA and Renault. For the moment, the French government has signalled its support for the merger, but Economy Minister Bruno Le Maire warned we "will remain particularly vigilant on the industrial footprint in France, where decision making will be located, and promises by the new group to create in Europe the infrastructure to build electric batteries" needed for the shift to new vehicles.

Italian PM Giuseppe Conte voiced similar concerns, saying "the important thing is guaranteeing employment and investment levels", according to the Italian news agency AGI. The carmakers said the 3.7 billion in projected annual savings was calculated without any factory closures.

French unions said they had received assurances that there wouldn't be factory closures, and IG Metall, which represents workers at Opel's factories in Germany, noted PSA had guaranteed jobs there through July 2023 when it took over the firm. Unite, which represents workers at PSA-owned Vauxhall factories in Britain, said: "merger talks combined with Brexit uncertainty is deeply unsettling for Vauxhall's UK workforce, which is one of the most efficient in Europe."

The merger plan comes as the auto manufacturing sector -- which accounts for 5.7 percent of global GDP and eight percent of goods trade -- shrank by 1.7 percent last year by volume of vehicles produced, according to the IMF. A tie-up into a bigger firm would offer both companies advantages.

"FCA could remain independent as could PSA but obviously they lack the scale of some of their competition which puts them at a disadvantage," said Ian Fletcher, an automotive analyst at market research firm IHS Markit. Savings could come from sharing certain car parts and designs as well as research and development costs as carmakers strive to meet new emissions standards in Europe as well as work on electric and autonomous vehicles.

A merged company "would likely be able to hone the business outside of their key North American and European markets to leverage the best parts, as well as potentially create new opportunities," added Fletcher.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)