PSA board signs off on Fiat Chrysler merger, source says

The board of French carmaker PSA, the owner of Peugeot, approved a binding agreement for a $50 billion merger with rival Fiat Chrysler, a source close to the matter said on Tuesday.

A separate Fiat Chrysler (FCA) board meeting was under way to discuss finalizing the memorandum of understanding to create the world’s No. 4 carmaker, the source added, in a deal that would reshape the global car industry.

The two midsized automakers announced plans six weeks ago for a tie-up to help them deal with big challenges in the industry, including a global downturn in demand and the need to develop costly cleaner cars to meet looming anti-pollution rules.

A source close to FCA had said earlier the two companies could formally announce the agreement early on Wednesday, followed by a conference call to explain further details later in the day.

China’s Dongfeng Motor Group Co Ltd, which now has a 12.2% equity stake in PSA, will have a reduced stake of around 4.5% in the merged group, two sources said, in a move that could help make regulatory approval easier.

According to the deal approved by PSA’s board on Tuesday, FCA’s robot unit, Comau, will remain within the combined group rather than be spun off as was originally planned in October, the sources said.

The new group will evaluate how to extract value from Comau.

Family support

Ahead of the meetings, entities representing the Peugeot family, Etablissements Peugeot Freres (EPF) and FFP, unanimously approved a proposed memorandum of understanding for the planned merger, a source familiar with the situation said.

FCA and PSA had said they would seek to finalize a deal by the end of the year to create a group with 8.7 million annual vehicle sales.

That would put it fourth globally behind Volkswagen, Toyota Motor Corp and the Renault-Nissan alliance. It was only six months ago that FCA abandoned merger talks with PSA’s French rival Renault.

FCA would gain access to PSA’s more modern vehicle platforms, helping it meet tough new emissions rules, while Europe-focused PSA would benefit from FCA’s profitable U.S. business featuring brands such as Ram and Jeep.

However, the deal could still face close regulatory scrutiny, while governments in Rome, Paris and unions are all likely to be wary about potential job losses from a combined workforce of around 400,000.

PSA’s Carlos Tavares will be chief executive and FCA’s John Elkann – the scion of Italy’s Agnelli family, which controls FCA through their holding company Exor – chairman of the combined company.

The group will include the Fiat, Jeep, Dodge, Ram, Chrysler, Alfa Romeo, Maserati, Peugeot, DS, Opel and Vauxhall brands, allowing it to serve mass and premium passenger car markets as well as those for trucks and light commercial vehicles.

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