Fiat Chrysler & PSA reexamine terms of €50bn merger

PSA Group and Fiat Chrysler are reexamining the terms of their €50 billion merger agreement in order to preserve more cash so as to help both auto firms weather the terms of the economic impact of the Covid-19 pandemic.

Expected dividends to FCA shareholders have been slashed from €5.5 billion down to €2.9 billion so that money remains inside the newly formed company, which will be called Stellantis and in terms of volume will be the world's fourth largest automotive company.

Mike Manley, Chief Executive Officer of FCA, said: “I cannot commend highly enough the commitment of the teams working towards the launch of Stellantis and of all our people in overcoming the extraordinary challenges Covid-19 has presented. Today’s announcement is a further, strong signal of a common determination to ensure that Stellantis has all the resources it needs to apply its unique assets, its creative energies and many opportunities to the creation of superior value for all our stakeholders.”

Commenting on the amended agreement, Carlos Tavares, Chairman of the Managing Board of PSA Group, said: “With this new decisive milestone, we are moving all together towards our goal in the best possible condition with even greater prospects for Stellantis. I would like to take this opportunity to warmly thank the teams who have built reciprocal relations of trust, including during the Covid-19 confinement. The human factor is at the heart of the dynamic of such a project, together with the support of our shareholders who have once again demonstrated their commitment to the creation of Stellantis.”

The two companies reached a deal over the terms of the merger late last year, though it was widely anticipated that some changes would be made following the coronavirus outbreak as car plants everywhere were closed, leading to a collapse in global car sales.

Analysts had predicted a likely change to the original agreement would be the proposed €5.5 billion dividend to FCA shareholders, which was intended to equalise the businesses in size preceding a 50-50 combination. 

Cutting FCA's payout alone does alter the merger ratio, so PSA is set to reset the balance by giving half of its shares in automotive components group Faurecia, of which PSA owns 46% - worth around €2.6 billion on Monday. 

The Faurecia shares will now be split evenly between both companies' investors.

The two companies have remained financially stable despite the slowdown with PSA reporting a profit of €595 million in the first half of 2020 - a relatively unique position amongst carmakers - and FCA scraping a profit in its US heartland during the second quarter.

Depending on conditions at the end of this year, the companies may both may an additional €500 million to shareholders before the closure of the merger deal, which is expected in the first quarter of 2021.

They also raised expected cost savings from €3.7 billion to over €5 billion.

The merger deal still faces approval investigations in Europe and it remains possible that one or both companies may be forced to shed parts of their combined van business.

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