Groupe PSA and FCA plan to join forces to 'build a world leader for a new era in sustainable mobility'.
Discussions have opened a path to the creation of a new group with global scale and resources owned 50% by Groupe PSA shareholders and 50% by FCA shareholders. In a rapidly changing environment, with new challenges in connected, electrified, shared and autonomous mobility, the combined entity would leverage its strong global R&D footprint and ecosystem to foster innovation and meet these challenges with speed and capital efficiency.The plan to combine the Groupe PSA (Citroen, Peugeot, DS Automobiles, Opel, Vauxhall) and FCA (Alfa Romeo, Chrysler, Dodge, Fiat, Lancia, Maserati, Jeep, Ram) businesses follows intensive discussions between the senior managements of the two companies. 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.
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 billion1 and recurring operating profit of over €11 billion2.
The significant value accretion resulting from the transaction is estimated to be approximately €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 €2.8 billion.
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 effected 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.
According to Forbes though, there are a number of issues which could derail the merger.
The announcement that PSA Groupe and Fiat Chrysler Automobiles (FCA) plan to merge initially sparked euphoria among investors, but in the cold light of dawn some ugly realities began to emerge suggesting the deal might yet stumble and die, said Forbes.
Among them are worries the merged company might be hit by European Union fuel efficiency rules. The threat of job cuts as PSA/FCA seeks to eliminate overlaps and inefficiencies is politically fraught, and wrangling between the wide range of important shareholders and stakeholders including the French and Italian governments, the Chinese shareholders, and the Agnelli and Peugeot families could derail the plan.
Some analysts believe PSA is paying too much to get the deal done. Meanwhile, if the deal does go through, that could leave the likes of Ford and Renault, which earlier this year was close to merging with FCA, looking subscale and exposed to the much more efficient manufacturers.