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PSA Group and Fiat Chrysler Automobiles to Create the World’s Fourth Largest Carmaker

Rival carmakers PSA Group and Fiat Chrysler Automobiles NV announced their plan to merge, combining assets in order to confront pricey new era of trade tariffs, emissions rules and electrification.

Shareholders of each company will own 50% of the combined entity, that will be listed in Paris, Milan and New York. Investors in Fiat will get dividend worth of 5.5 billion euros and its robotics subsidiary Comau, while France’s PSA will probably issue its 46% stake in auto-parts maker Faurecia SE. Cost savings from the deal are accounted to be around 3.7 billion euros.

At the time of writing, PSA shares fell 11.92% in Paris, while Fiat kept on rising by 8.80% in Milan.

The boards of both companies said they will be working toward a binding agreement in the coming weeks. When over, the new company will become the fourth-largest automaker with a combined market value of more than $50 billion.
The new regional car giant will come as a direct competitor to Volkswagen AG with the slight difference that the new company will have a strong billionaire basis – Agnelli clan in Italy and the Peugeot family of France.

There will be 11 board members with six members from PSA including Chief Executive Officer Carlos Tavares, who will remain CEO for five years, and five from Fiat Chrysler. Fiat Chairman John Elkann stays in that role.

This announcement comes a few months after the collapse of negotiations between Fiat and French competitor Renault SA. Those talks stopped in June when Elkann, who also heads Fiat Chrysler’s largest shareholder, Exor NV, gave up while facing strong opposition from the French government and no support from Renault’s Japanese alliance partner Nissan Motor Co.

Felipe Munoz-Vieira, an analyst with Jato Dynamics in Turin said:

“It’s not as good a partner as Renault, but any partnership is good. Fiat Chrysler is not facing very good times, and it seems it’s getting worse as the time passes.”

The thing that both companies haven’t so much invested in the electrification of its vehicles and both cannot say they have a significant presence in China. However, Munoz says that a two-companies-combo could help them enter the pretty profitable commercial vehicle market in Europe.

Nevertheless, this won’t be as easy as it might seem. Volkswagen in July announced it will partner with Ford Motor Co. on electric and self-driving car technology. Toyota Motor Corp. is also collaborating with Subaru Corp. and China’s BYD Co. The Indian owner of Jaguar Land Rover also said earlier they are searching for new partners for the British automaker but will not sell the unit.

As one of the biggest shareholders of PSA, whose brands also include Opel and Vauxhall, the French government has signaled support for a deal, but warned it would inspect the ruling body of the new company, as well as its commitment to build a European battery-maker.

French Finance Minister Bruno Le Maire said:

“The operation responds to a need in the auto industry for consolidation to face the challenges of the future.”

The truth is, the French government likes the new deal because the products of both companies are quite complementary ones as well as geographically fit.

PSA Group and Fiat Chrysler Automobiles to Create the World’s Fourth Largest Carmaker

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