PSA Peugeot, Fiat Back 'merger Of Equals'

PSA Peugeot and Fiat Chrysler on Thursday unveiled a plan for a 50-50 merger that aims to create the world's fourth-largest car manufacturer, but quickly came under pressure to preserve jobs.

With automakers needing to cut costs as the global car market slows and at the same time invest heavily in developing cleaner vehicles, the French and US-Italian firms said their tie-up would generate 3.7 billion euros (HK$32.3 billion) in annual savings.

The boards of PSA and Fiat Chrysler (FCA) backed the plan on Wednesday that would result in a company with combined sales of nearly 170 billion euros ($190 billion) per year and 11 billion euros of operating profits, with negotiations continuing to resolve all the details.

The tie-up would leapfrog the carmakers into 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 Vauxhall.

The boards of both carmakers "both share the conviction that there is compelling logic for a bold and decisive move that would create an industry leader," said the statement.

The merger would be achieved via the creation of a parent company in the Netherlands, with the shareholders of each current firm holding half the capital.

The Dutch-based parent company would have balanced representation with FCA's John Elkann as chairman and PSA's Carlos Tavares as CEO.

While investors cheered when the automakers first confirmed their talks on Wednesday, with Fiat Chrysler shares rising nine percent in Milan and PSA shares adding four percent in Paris, the reception to Thursday's details was quite different.

PSA shares fell by nearly 13 percent, while those in Fiat Chrysler jumped almost nine percent, despite the Italian-US firm posting third-quarter losses of 179 million euros.

Daniel Larrouturou at asset management firm Dom Finance said the reaction of PSA shareholders was due to its market capitalisation being larger than Fiat Chrysler's.

"With a 50-50 merger, Peugeot is technically buying Fiat and offering a bonus to its shareholders," he said. "The market is taking this into account and consequently adapting the share price."

While the companies said a definitive deal could be reached soon, a successful outcome is not guaranteed.

Fiat Chrysler tried to merge with PSA's French rival Renault earlier this year, but the deal was scuppered in part by opposition from the French government, which owns stakes in both PSA and Renault.

For the moment, Paris has signalled its support for the merger.

But Economy Minister Bruno Le Maire warned we "will remain particularly vigilant on the industrial footprint in France".

Italian Prime Minister Giuseppe Conte said "the important thing is guaranteeing employment and investment levels".

The carmakers said the 3.7 billion in projected annual savings was calculated without any factory closures.

Patrick Michel, an FO trade union representative at a PSA plant in the eastern French town of Sochaux, welcomed the deal, saying it would put the French company "on the same level as the global giants Volkwagen and Toyota."

He said he hoped it would lead to more work for PSA's French sites, for example in producing cleaner engines for Fiat, struggling to meet EU emissions targets.

But others expressed fears for jobs with "workers pitted against each other," Jean-Pierre Mercier, a CGT delegate, warned.

IG Metall, which represents workers at Opel's factories in Germany, noted PSA had guaranteed jobs there through July 2023 when it took over the firm.

Unite, which represents workers at PSA-owned Vauxhall factories in Britain, said "merger talks combined with Brexit uncertainty is deeply unsettling for Vauxhall's UK workforce, which is one of the most efficient in Europe."

The merger plan comes as the auto manufacturing sector -- which accounts for 5.7 percent of global GDP and eight percent of goods trade -- shrank by 1.7 percent last year by volume of vehicles produced, according to the IMF. (AFP)