Fiat, PSA In Talks To Form US$50bn Auto Giant

Fiat Chrysler and Groupe PSA, the maker of Peugeot and Citroen cars, announced on Wednesday that they were in merger talks that could propel them into the top ranks as the world's fourth largest automaker.

Italian-US carmaker Fiat Chrysler Automobiles (FCA) confirmed in a statement that "there are ongoing discussions aimed at creating one of the world's leading mobility groups" with France's PSA after reports of the talks began to circulate.

The statement and a similar one from PSA offered no additional details.

A person with knowledge of the matter told AFP on Tuesday that a merger -- which is not guaranteed -- would create a firm valued at about US$50 billion.

A merger would bring PSA access to the lucrative US market, while finally fulfilling the long-held goal of ex-FCA head Sergio Marchionne, who died last year, to merge the carmaker with another in order to survive escalating costs and global pressure to roll out electric vehicles.

The tie-up would make the new automaker the fourth largest in terms of sales behind Volkswagen, Renault-Nissan-Mitsubishi and Toyota, and would combine a host of well-known brands from Alfa Romeo, Jeep and Dodge to Citroen, Opel and Peugeot.

Investors cheered the news. FCA shares in Milan raced over 9 percent higher in morning trading. Meanwhile, PSA shares climbed more than 6 percent in Paris.

The negotiations come four months after talks to merge FCA with Renault broke down, a potential deal scuppered in part by resistance from the French government, which owns a stake in Renault - and also holds a stake in PSA.

Analyst Michael Hewson at CMC Markets UK cautioned in a note on Wednesday that political pressure from Paris could again be an obstacle, given that the French government holds an approximately 12 percent of PSA.

"It is hard not to see that this attempt by Fiat might well go the same way as the failed Renault attempt earlier this year," wrote Hewson. "Business and government always make uncomfortable bedfellows."

France's economy ministry said in a statement that the state would be "particularly vigilant" about jobs, corporate governance and preserving the industrial footprint when assessing any merger.

The current negotiations "attest to the movement towards global consolidation in the auto industry, which is necessary and in which France wants to play its role," the ministry wrote.

The Italian government took a cautious stance.

"We are observing what is going on. It is a market operation and I think it is appropriate not to make declarations on this issue," said Italian minister for economic development, Stefano Patuanelli. (AFP)