PSA, Fiat Chrysler Agree on Terms of Mega-Merger

French carmaker PSA and U.S.-Italian rival Fiat Chrysler said Wednesday they had agreed on the terms of a merger to create the world's fourth largest automaker as the sector grapples with the difficult and costly transition to cleaner and more sustainable mobility. 

"Fiat Chrysler Automobiles and Peugeot SA (Groupe PSA) have today signed a binding combination agreement providing for a 50/50 merger of their businesses to create the fourth largest global automotive original equipment manufacturer by volume and third largest by revenue," the statement said.

It added there would be "no plant closures resulting from the transaction." 

Ranking behind global rivals Volkswagen, Renault-Nissan-Mitsubishi and Toyota, the combined group will have a workforce of more than 400,000, total revenues of close to 170 billion euros ($190 million) and annual unit sales of some 8.7 million vehicles.

Its brands will include Fiat, Alfa Romeo, Chrysler, Citroen, Dodge, DS, Jeep, Lancia, Maserati, Opel, Peugeot and Vauxhall. 

The joint entity will have "the leadership, resources and scale to be at the forefront of a new era of sustainable mobility," PSA and Fiat Chrysler said. 

The tie-up -- which the two sides had originally agreed to at the end of October -- will "deliver approximately 3.7 billion euros in estimated annual synergies" or cost savings.

The merger was expected to be completed in 12-15 months, the statement said.

- 'Huge opportunity' -

"Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility," PSA's Carlos Tavares said in a statement. 

Fiat Chrysler CEO Mike Manley saw it as "a union of two companies with incredible brands and a skilled and dedicated workforce. Both have faced the toughest of times and have emerged as agile, smart, formidable competitors." 

The combined group -- which has yet to be given a name -- would be headquartered in the Netherlands, and continue to be listed on the Paris, Milan and New York stock exchanges. 

Fiat Chrysler chief John Elkann will be chairman and PSA's Tavares chief executive. 

The lion's share of the savings will be generated in the joint development of technology, products and platforms, as well as in purchasing, but also in marketing, IT systems and logistics, the statement said. 

"Those synergies will enable the combined business to invest significantly in the technologies and services that will shape mobility in the future while meeting the challenging global CO2 regulatory requirements." 

- 'Sizable overlap' - 

Analysts nevertheless argue that the two companies are still too dependent on the declining European market and lack a strong presence in China. 

"Both are weak in China, the world's largest car market, while their center of gravity is in the mature European market," said Nick Oliver, a professor at University of Edinburgh Business School.

"It is not clear how the merger will boost joint revenues; neither partner has products that can easily be sold under the others' brands in new or existing markets," the expert said. 

CMC Markets analyst Michael Hewson saw "a sizable overlap between the two businesses, with the business in the UK perhaps the most vulnerable given the politics at play, and the labor laws in France and Italy which make it much more difficult to reduce the size of the workforce there."

Jasper Lawler at London Capital Group suggested the U.S. regulatory authorities could still block the deal. 

"We think given the negative ramifications for European –- and especially German economic growth from the downturn in the car industry –- this deal has a good chance of passing the EU's typically very interventionist regulators," he said.

"The bigger challenge could come stateside if the Trump administration gets an any inkling that homegrown brand Chrysler is becoming European."

For their part, the French and Italian governments  both welcomed the tie-up. 

The announced was "very good news" as it marked "an important stage in the creation of a European champion," said economy and finance minister Bruno Le Maire. 

His counterpart in Rome, Roberto Gualtieri, said the Italian government "will continue to monitor the impact in terms of development, investment and jobs."

The deal "represents a fundamental stage in the consolidation of the car market" and the new group "will take a leading role in the transition towards sustainable mobility," he said. 

In the U.S., the United Auto Workers' union said "there are many challenges in the auto industry today and we hope that (the merger) will bring opportunities for growth." 

Shares in PSA were up 1.1 percent to 22.35 euros in afternoon trading in Paris, while those in Fiat Chrysler edged 0.1 percent higher to 13.61 euros in Milan.

Source: Agence France Presse

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