Peugeot, Fiat merger to be sealed by shareholders

Rob Nijhof in a 1948 Osfa Faccioli Fiat 750 Sport participates during historical 'Mille Miglia' vintage car rally's second stage from Cervia to Rome, as they pass through San Marino, 23 October 2020. [Filippo Venezia/EPA/EFE]

The shareholders of France’s PSA and US-Italian rival Fiat Chrysler are expected to approve their merger on Monday (4 January), creating the world’s fourth-biggest automaker by volume, Stellantis.

The outcome of the vote by PSA and Fiat shareholders is seen as a foregone conclusion, coming two weeks after the European Commission gave conditional approval to the mega-merger announced in late 2019.

The 50/50 tie-up, which was delayed by the Covid-19 pandemic, is seen as crucial for the two groups to undertake the investment needed to transition to clean car technology.

“This merger is a matter of survival for both Fiat and PSA,” Giuliano Noci, professor of strategy at Milan Business School said, citing the “enormous technological and strategic challenges” faced by both as well as the damage wrought by the pandemic.

The merger allows Fiat-Chrysler to strengthen its presence in Europe and the French group to regain a foothold in the US.

Ranking behind global rivals such as Volkswagen, Renault-Nissan-Mitsubishi and Toyota, Stellantis will be the fourth-largest automaker by volume and the third-largest by revenue, with a workforce of over 400,000.

The new company will group producers such as Peugeot, Citroen, Fiat, Chrysler, Jeep, Alfa Romeo and Maserati, each of which will continue under their own brand names.

PSA and Fiat expect the merger to allow them to achieve billions of euros in synergies each year.

Weathering Covid

“Only the most agile, with a Darwinian spirit, will survive,” PSA chief Carlos Tavares, who will take the helm of the merged group, said in November.

The European Commission had been worried the merger could affect competition in Europe’s lucrative van market, with PSA and FCA together accounting for 34% of market share.

To assuage those concerns, the commission said PSA would continue an agreement with Toyota to manufacture vans to be sold under the Japanese brand in Europe.

The disruptions wrought by Covid-19, which ground manufacturing to a halt for several weeks in the first half of 2020, forced PSA and Fiat to change the terms of their tie-up to ensure it remained a merger of equals.

FCA agreed to lower the exceptional dividend to be distributed to its shareholders while PSA agreed to share out its 46% stake in French automotive equipment maker Faurecia among all shareholders of the new company, rather than its shareholders alone as agreed to previously.

The two companies have so far shown relative resilience in the face of the pandemic.

Fiat-Chrysler posted net profits of €1.2-billion in the third quarter, compared with losses of €1.04 billion in the second quarter when much of the world was in lockdown.

French union concerns

PSA sold 589,000 fewer vehicles in the third quarter but sold them for more money as part of a strategy to maximise profitability and cash flow which boosted turnover by 1.2%.

At the time when the merger was announced Tavares assured no plant would be closed, but unions in France remain sceptical.

“On the whole it’s a good insurance policy for the future of our group. Those who don’t make the shift risk being left by the wayside,” a representative for the CFTC union at PSA, Franck Don, said.

But he wondered: “What synergies will they find and what consequences will that have for sites in France?”

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