Groupe PSA, FCA to merge into Euros 170 billion auto behemoth

The proposed combination would create the 4th largest global OEM in terms of unit sales (8.7 million vehicles), with combined revenues of nearly 170 billion Euros (approx. Rs 13,48,262 crore).

This new merged entity will be owned 50% by Groupe PSA shareholders and 50% by FCA shareholders.

FCA brands include Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, Ram and Maserati. It also sells parts and services under the Mopar name and operates in the components and production systems sectors under the Comau and Teksid brands.

Groupe PSA owns five car brands, Peugeot, Citroen, DS, Opel and Vauxhall and provides a wide array of mobility and smart services under the Free2Move brand. Groupe PSA is also involved in financing activities through Banque PSA Finance and in automotive equipment via Faurecia.

CLICK HERE TO READ: FCA WITHDRAWS MERGER PROPOSAL TO GROUPE RENAULT

In early June 2019 the Board of Fiat Chrysler Automobiles which met under the Chairmanship of John Elkann, had resolved to withdraw with immediate effect its merger proposal made to Groupe Renault.

Among the several reasons for its decision, FCA had stated that “it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”

Coming back to the FCA-PSA union, the Supervisory Board of Peugeot S.A. and the Board of Directors of Fiat Chrysler Automobiles have each unanimously agreed to work towards a full combination of their respective businesses by way of a 50/50 merger. Both boards have given the mandate to their respective teams to finalize the discussions to reach a binding Memorandum of Understanding in the coming weeks.

The proposed combination would create the 4th largest global OEM in terms of unit sales (8.7 million vehicles), with combined revenues of nearly 170 billion Euros (approx. Rs 13,48,262 crore) and recurring operating profit of over Euros 11 billion on a simple aggregated basis of 2018 results excluding Magneti Marelli and Faurecia. The significant value accretion resulting from the transaction is estimated to be approximately Euros 3.7 billion in annual run-rate synergies derived principally from a more efficient allocation of resources for large-scale investments in vehicle platforms, powertrain and technology and from the enhanced purchasing capability inherent in the combined group’s new scale. These synergy estimates are not based on any plant closures. It is projected that 80% of the synergies would be achieved after 4 years. The total one-time cost of achieving the synergies is estimated at Euros 2.8 billion.

Both Groupe PSA and FCA are convinced that the merger will 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.

The shareholders of each company would own 50% of the equity of the newly combined group and would therefore share equally in the benefits arising from the combination. The transaction would be affected by way of a merger under a Dutch parent company and the governance structure of the new company would be balanced between the contributing shareholders, with the majority of the directors being independent. The Board would be composed of 11 members. Five Board members would be nominated by FCA (including John Elkann as Chairman) and five would be nominated by Groupe PSA (including the Senior Independent Director and the Vice Chairman). 

John Elkann is an American-Italian industrialist. He was the chosen heir of his grandfather Gianni Agnelli, and chairs and controls Fiat Chrysler Automobiles

The Chief Executive Officer would be Carlos Tavares for an initial term of five years and he would also be a member of the Board.

Carlos Tavares said: “This convergence brings significant value to all the stakeholders and opens a bright future for the combined entity. I’m pleased with the work already done with Mike and will be very happy to work with him to build a great company together.”

Mike Manley, CEO, FCA said, "I'm delighted by the opportunity to work with Carlos and his team on this potentially industry-changing combination. We have a long history of successful cooperation with Groupe PSA and I am convinced that together with our great people we can create a world class global mobility company."

The new group’s Dutch-domiciled parent company would be listed on Euronext (Paris), the Borsa Italiana (Milan) and the New York Stock Exchange and would continue to maintain significant presences in the current operating head-office locations in France, Italy and the US.

According to the press release, it is proposed that the by-laws of the new combined company would provide that the loyalty voting program will not operate to grant voting rights to any single shareholder in the Shareholders Meeting exceeding 30%4 of the total votes cast. It is also foreseen that there would be no carry over of existing double voting rights but that new double voting rights would accrue after a three-year holding period after completion of the merger.

A standstill in respect of the shareholdings of EXOR N.V., Bpifrance Participations SA, DFG and the Peugeot Family would apply for a period of 7 years following completion of the merger. EXOR, Bpifrance Participations and the Peugeot Family would be subject to a 3- year lock-up in respect of their shareholdings except that the Peugeot Family would be permitted to increase its shareholding by up to 2.5% during the first 3 years following the closing, only by acquiring shares from Bpifrance Participations and DFG.

Prior to the completion of the transaction, FCA would distribute to its shareholders a special dividend of Euros 5.5 billion, as well as its shareholding in Comau. In addition, prior to completion, Peugeot would distribute to its shareholders its 46% stake in Faurecia. This would enable the combined groups’ shareholders to equally share in the synergies and benefits that would flow from a merger while recognizing the significant value of FCA’s differentiated platform in North America and strong position in Latin America, including its market-leading margins in those regions. It would also reflect the added value that FCA’s higher-end global brands Alfa Romeo and Maserati would bring given their substantial development potential.

The extended portfolio would cover all market segments with iconic brands and strong products based on rationalized platforms and optimization of investments. The proposal would be submitted to the information and consultation process of the relevant employee bodies, and would be subject to customary closing conditions, including final board approvals of the binding Memorandum of Understanding and agreement on definitive documentation, the release added.