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FCA, PSA Group confirm merger plans

Second crack: FCA attempted without luck to join forces with Renault Group earlier this year but is hoping its proposed merger with PSA Group will have a more positive outcome.

Fourth largest automotive conglomerate in making as FCA, PSA Group look to merge

1 Nov 2019

FIAT Chrysler Automobiles (FCA) and PSA Group have announced plans for a merger that would create the world’s fourth largest automotive conglomerate by annual sales and reduce development costs for their emerging ranges of electric and autonomous vehicles.


This marks the second time in five months that FCA has attempted to merge with a French manufacturer, having previously engaged Renault Group before talks fell part within two weeks due to “political conditions”.


With combined annual sales of about 8.7 million vehicles, the proposed conglomerate would sit behind Volkswagen Group, the Renault-Nissan-Mitsubishi Alliance and Toyota Motor Corporation in the global automotive pecking order.


FCA and PSA Group claim that a merger would deliver combined revenues of nearly €170 billion ($A275.2b) and a recurring operating profit of more than €11 billion ($A17.8b), with both estimates excluding the former’s Magnetic Marelli and the latter’s Faurecia suppliers.


They have also suggested that the Italian-American-French conglomerate would have about €3.7 billion ($A6b) 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”.


Critically, these synergy estimates are not based on any plant closures, although FCA and PSA Group are yet to officially rule out such moves.


It is expected that 80 per cent of the synergies would be reached after four years, with the total one-time cost of achieving them estimated to be €2.8 billion ($A4.5b).


In a joint statement, FCA and PSA Group said “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”.


“The extended portfolio would cover all market segments with iconic brands and strong products based on rationalised platforms and optimisation of investments,” they added.


FCA currently presides over eight brands (Fiat, Alfa Romeo, Lancia, Maserati, Chrysler, Jeep, Dodge and Ram), while PSA Group has five (Peugeot, Citroen and DS as well as Opel and Vauxhall that were bought from General Motors in 2017) under its umbrella.


The former has a strong presence in North America, South America and Italy, while the latter has found most of its success in Europe, Latin America and parts of Africa, and it critically does not compete in the North American market but has plans to do so from 2023.


Similar to the proposed Renault Group, a merger between FCA and PSA Group would see shareholders from each manufacturer have equal ownership of the newly combined conglomerate that would be overseen by a Dutch parent company.


To be listed on Euronext (Paris), the Borsa Italiana (Milan) and the New York Stock Exchange, the Dutch parent company would have a governance structure balanced between FCA and PSA Group’s shareholders, with the majority of board members being independent.


The board would be composed of 11 members, with five nominated by FCA and another five from PSA Group, while the 11th would help settle any deadlocks.


FCA chairman John Elkann would serve as chairman of the board, while PSA Group chief executive and chairman of the managing board Carlos Tavares would be appointed as the proposed Italian-American-French conglomerate’s CEO (for an initial term of five years) and as a member of the board for its Dutch parent company.


Two of PSA Group’s other four board member nominations would serve as vice-chairman and senior independent director. Their names are yet to be put forth.


The Dutch parent company would maintain significant presences in FCA’s Italian and American head offices as well as in PSA Group’s French headquarters.


Mr 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 (Manley, FCA chief executive) and will be very happy to work with him to build a great company together.”


Echoing this sentiment, Mr Manley 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.”


FCA and PSA Group say they are hoping to reach a binding Memorandum of Understanding “in the coming weeks”, after which the proposed merger would be assessed by the relevant regulators who will likely show concern over any potential job losses.

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