Fiat Chrysler and Peugeot set the course for creation of 4th largest automaker in the world

Fiat Chrysler and Peugeot’s parent, PSA, plan to join forces in a merger of equals that will create the world’s fourth-largest carmaker, seeking the scale to fund heavy investments in new technologies and cope with slowing demand.

Fiat Chrysler (FCA) and PSA announced on Thursday (10/31) that they intend to reach a binding deal to create a US$50bn automotive group that will have shares listed in Paris, Milan, and New York. The chief executive of the new group will be current PSA chairman Carlos Tavares and the chairman of the board will be current FCA chairman John Elkann.

In Brazil, the combined group is expected to surpass General Motors and Volkswagen in vehicle sales. From January to September, FCA and PSA registered 395,500 licenses compared to GM’s 345,750 and Volkswagen group’s 304,600, according to Fenabrave data.

In Brazil, Fiat’s largest market outside Italy, FCA has two vehicle factories – Betim (MG) and Goiana (PE) – with a total capacity of about 1m cars per year, as well as two engine factories capable of producing 1.4m thrusters each year. PSA has an automotive hub in Porto Real (RJ), including vehicle and engine factories.

The group will feature the brands Fiat, Jeep, Dodge, Ram, Chrysler, Alfa Romeo, Maserati, Peugeot, Citroen, DS, Opel, and Vauxhall, including popular, luxury cars, SUVs, and commercial vehicles.

The announcement came less than five months after the FCA dropped talks on a merger with Renault.

With the merger, FCA will have access to PSA’s most modern vehicle platforms, helping the group comply with stricter pollutant emission standards, while Europe-focused PSA will benefit from FCA’s lucrative business in the United States and in large markets like Brazil.

Jefferies analyst Philippe Houchois said the achievement of a merger of equal parts means PSA will pay a 32% premium to take control of FCA.

FCA shares jumped more than 11% in Milan while PSA shares in Paris plunged as much as 14%.

PSA and FCA said they expect to conclude the deal in the coming weeks. The deal will create a group with sales of 8.7m vehicles per year that will be behind Volkswagen, Toyota, and Renault-Nissan.

The two automakers, which also have vehicle factories in Brazil, aim to save 3.7bn euros, of which 80% will be achieved in the first four years of the deal. The companies did not mention closing factories.

Source: Reuters

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