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FCA and Peugeot reportedly agree on merger

FCA and Peugeot reportedly agree on merger

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Citing a Wall Street Journal report, the Detroit Free Press saysFiat Chrysler and PSA Groupe have agreed to merge.” The Journal reported on talks between the two car companies only yesterday. It’s said that Peugeot’s board met yesterday to approve the deal, FCA’s board met today, and an announcement could come as soon as tomorrow, Thursday.

Both automakers have released statements, but neither company has released any information beyond admitting to ongoing talks. If the merger happens, the combined entity would become the world’s fourth-largest carmaker with a $50 billion valuation, slotting in behind Toyota, the Volkswagen Group, and the Renault Nissan Mitsubishi alliance. Among the merger options possible, “an all-stock merger of equals” is the one analysts and Moody’s seem to give the best grade.

The reported merger would come about four months after FCA walked away from merger talks with Renault. FCA said the French government scuppered those talks over the role of Nissan in a reformed entity, but there were also brewing issues with French unions, and ongoing turmoil among Renault and Nissan leadership thanks to continuing fallout from ex-CEO Carlos Ghosn’s arrest last year.

FCA makes most of its revenue in the U.S. and rules Italy, while Peugeot is the second-best-selling automaker in Europe with its own brand in France and Opel in Germany. The two companies already have a partnership in Europe making vans, one that FCA CEO Mike Manley has spoken highly of. Among the list of obvious benefits in a potential merger, FCA would get access to Peugeot’s small, modern platforms, $10.2 billion in cash, and electrified and hybrid architecture developments, the latter especially important to FCA as those are fields where it lags. Peugeot would get much easier access to the U.S. market, and the money-printing brands Jeep and Ram.

A merged carmaker would have combined sales of nearly 9 million a year, based on 2018 results. By comparison, both Volkswagen and Toyota sell over 10 million cars a year, while the Renault-Nissan-Mitsubishi alliance almost 11 million.

Peugeot CEO Carlos Tavares has proved he knows how to do turnarounds and mergers. After leaving a position as Carlos Ghosn’s right-hand man in 2012, Tavares took over Peugeot in 2014, navigated a bailout from the French government and China’s Dongfeng Motors in 2015, and turned PSA into a regional powerhouse. He partly achieved that by buying GM’s white elephant Opel brand in 2017 and almost instantly making it profitable.

Potential obstacles include the French government, which owns more than 12 percent of Peugeot, but with less control inside the carmaker than it has at Renault. There are French unions, which have already issued a contentious statement. The Peugeot family owns the same size stake. And there’s the Dongfeng share, also just over 12 percent, which might not play well considering political tensions in the U.S. right now. And the Italian government and Italian unions have also noted that they’re watching the deal.

Nor would a merger give FCA and Peugeot a better position in China, the world’s largest auto market, where both companies return weak results. “FCA and Peugeot are both lousy in China, they just lose money,” industry analyst Ferdinand Dudenhoeffer told the Associated Press.

Material from the Associated Press was used in this report.

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October 30, 2019 at 06:02PM