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PSA and Fiat Chrysler unveil merger of equals

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AFP Paris
Peugeot-maker PSA and Fiat Chrysler unveiled Thursday a plan for a 50-50 merger of their operations they said would generate billions in savings without factory closures as it creates the world's fourth-largest car manufacturer.
In a joint statement the French and US-Italian carmakers said their boards of directors "have each unanimously agreed to work towards a full combination of their respective businesses by way of a 50/50 merger".
The merger, which the firms said will result in a company with combined sales of nearly 170 billion euros (USD 190 billion) per year and 11 billion euros of operating profits, would help produce the scale needed in an industry facing slowing demand and which must invest billions to develop electric vehicles.
The merger would be achieved via the creation of a parent company in the Netherlands in which the shareholders of each current group would own half.
The Dutch-based parent company would have balanced representation and a majority of independent directors with FCA's John Elkann as chairman and PSA's Carlos Tavares as CEO and member of the board.
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.
A merger would create significant savings as both firms share the costs of developing electric vehicles that are expected to dominate personal transportation in the future as the world strives to reduce carbon emissions to limit climate change.
"The significant value accretion resulting from the transaction is estimated to be approximately 3.7 billion euros 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," it said.
"These synergy estimates are not based on any plant closures," it added.
France, which owns a stake in PSA and earlier this year opposed a mooted tie-up between Renault and Fiat Chrysler, signalled it favours the project.
French Economy Minister Bruno Le Maire "favourably greets the entry into negotiations" of the two carmakers, said a statement from his office.
However, it warned the French government "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.
While investors cheered when the automakers first confirmed their talks on Wednesday, with Fiat Chrysler shares in Milan rising nine percent and PSA shares adding four percent in Paris, the reception to Thursday's details was quite different.
PSA shares fell nearly nine percent as trading got under way in Paris while those in Fiat Chrysler jumped 10.6 per cent in Milan.
The tie-up would make the new automaker the 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 Peugeot.
The merger plan comes as the auto manufacturing sector -- which accounts for 5.7 per cent of global GDP and eight per cent of goods trade -- shrank by 1.7 per cent last year by volume of vehicles produced, according to the IMF.
It makes business sense for both automakers beyond just sharing costs.
PSA relies heavily on the European market, exposing it to risks of a protracted slowdown there. Joining Fiat Chrysler would mean it is an automaker with a big presence in the key US market thanks to the Chrysler, Jeep, Dodge and Ram brands.
Meanwhile, Fiat Chrysler would gain access to the PSA's electric vehicle technology.
Analysts said size is important as automakers invest into electrifying their vehicles and are faced with lower margins as the market slows.
"We're in a period where grey skies are gathering over the auto industry. When business is harder, competition is stronger and margins get thinner," said Flavien Neuvy, director of the Cetelem Observatory, a research unit of BNP Paribas.
To offset the billions required to invest in advanced technologies, size is critical, Neuvy added.

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First Published: Oct 31 2019 | 3:10 PM IST

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