Groupe PSA and FCA have unanimously agreed to work toward a 50/50 merger. Both boards of directors have given a mandate to their respective teams to finalize the discussions in the coming weeks.
The plan to combine the businesses follows intensive discussions between senior management at the two companies. Technically the merger would create the fourth largest global OEM in terms of unit sales (8.7 million vehicles), with combined revenues of nearly €170bn (US$190bn) and recurring operating profit of over €11bn (US$12bn) on a simple aggregated basis of 2018 results excluding Magneti Marelli and Faurecia.
The significant value accretion resulting from the transaction is estimated to be approximately €3.7bn (US$4.1bn) 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 four years. The total one-time cost of achieving the synergies is estimated at €2.8bn (US$3.8bn).
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 affected 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.
The board would be composed of 11 members. Five board members would be nominated by FCA (including John Elkann as chairman) and five would be nominated by Groupe PSA (including the senior independent director and the vice chairman). Carlos Tavares, PSA chief executive, would serve as CEO for an initial term of five years and he would also be a member of the board.
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 and will be very happy to work with him to build a great company together.”
Mike Manley, FCA chief executive, 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.”
The new group’s Dutch-domiciled parent company would be listed on Euronext (Paris), the Borsa Italiana (Milan) and the New York Stock Exchange and would continue to maintain significant presences in the current operating head-office locations in France, Italy and the USA.
Prior to the completion of the transaction, FCA would distribute to its shareholders a special dividend of €5.5bn, as well as its shareholding in Comau. In addition, prior to completion, Peugeot would distribute to its shareholders its 46% stake in Faurecia. This would enable the combined groups’ shareholders to equally share in the synergies and benefits that would flow from a merger while recognizing the significant value of FCA’s differentiated platform in North America and strong position in Latin America, including its market-leading margins in those regions. It would also reflect the added value that FCA’s higher-end global brands Alfa Romeo and Maserati would bring given their substantial development potential.
The extended portfolio would cover all market segments with iconic brands and strong products based on rationalized platforms and optimization of investments.
