PSA and FCA merger proposal announced

As expected, Carlos Tavares would be named CEO of the combined group

As expected, Carlos Tavares would be named CEO of the combined group

PSA and FCA have jointly published plans for a merger that they say opens 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.

Both boards have given the mandate to their respective teams to finalise the discussions to reach a binding Memorandum of Understanding in the coming weeks.

The plan to combine the Groupe PSA and FCA 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 two companies say the combined entity would leverage a strong global R&D footprint and ecosystem to foster innovation and meet industry challenges with speed and capital efficiency.

The companies say the combination would create the 4th largest global OEM in terms of annual unit sales (around 8.7m vehicles) and combined revenues of EUR170bn.

At its inception, it is claimed the combined company would realise among the highest margins in the markets where it would operate, based on FCA's strength in North America and Latin America and Groupe PSA's in Europe.

The merged entity will also bring together the companies' extensive and growing capabilities in the technologies shaping the new era of sustainable mobility, including electrified powertrain, autonomous driving and digital connectivity.

They says there will be approximately EUR3.7bn estimated annual run-rate synergies without any plant closures resulting from the transaction. Run-rate synergies are 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.

As expected, it is planned that John Elkann will be chairman of the new company and Carlos Tavares will become CEO and member of the board.

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 EUR2.8bn.

The new board would be composed of eleven 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). The Chief Executive Officer would be Carlos Tavares for an initial term of five years and he would also be a member of the Board.

Carlos 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 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 US.

Prior to the completion of the transaction, FCA would distribute to its shareholders a special dividend of EUR5.5bn, as well as its shareholding in Comau. In addition, prior to completion, Peugeot would distribute to its shareholders its 46% stake in Faurecia. This, they say, will enable the combined groups' shareholders to equally share in the synergies and benefits that would flow from a merger while recognising 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 proposal will be submitted to the information and consultation process of the relevant employee bodies, and would be subject to customary closing conditions, including final board approvals of the binding Memorandum of Understanding and agreement on definitive documentation.

Complementary market geography – PSA and FCA unit sales (millions) 2018

Europe, MEA 3.398 1.428
NAFTA 0.0 2.534
Asia 0.289 0.228
Latin America 0.175 0.566
other 0.015 0.04
sum 3.877 4.796

Source: Annual reports

COMMENT – PSA and FCA merger makes sense for both

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