Fiat Chrysler Automobiles N.V. (“FCA”) and Peugeot S.A. (“Groupe PSA”) have signed an agreement for a 50/50 merger of their businesses to create the 4th largest global automotive OEM by volume (with annual sales of 8.7 million vehicles) and 3rd largest by revenue (with revenues of nearly €170 billion).
The combined entity will have a balanced and profitable global presence with a highly complementary and iconic brand portfolio covering all key vehicle segments from luxury, premium, and mainstream passenger cars through to SUVs and trucks & light commercial vehicles. This will be underpinned by FCA’s strength in North America and Latin America and Groupe PSA’s solid position in Europe.
Efficiencies gained from optimizing investments in vehicle platforms, engine families and new technologies, while leveraging increased scale, will enable the business to enhance its purchasing performance and create additional value for stakeholders. More than two- thirds of run rate volumes will be concentrated on 2 platforms, with approximately 3 million cars per year on each of the small platform and the compact/mid-size platform.
The new Group will have much greater geographic balance with 46 percent of revenues derived from Europe and 43 percent from North America, based on aggregated 2018 figures of each company. The combination will bring the opportunity for the new company to reshape the strategy in other regions.
Gains in efficiency derived from larger volumes, as well as the benefits of uniting the two companies’ strengths and core competencies, will ensure the combined business can offer all its customers best-in-class products, technologies and services and respond with increased agility to the shift taking place in this highly demanding sector.
The combined company will have a recurring operating profit of over €11 billion and an operating profit margin of 6.6 percent, based on a simple aggregated basis of 2018 results. The strong combined balance sheet provides significant financial flexibility and ample headroom both to execute strategic plans and invest in new technologies throughout the cycle.
These technology, product and platform-related savings are expected to account for approximately 40 percent of the total €3.7 billion in annual run-rate synergies, while purchasing – benefiting principally from scale and best price alignment – will represent a further estimated 40 percent of the synergies. Other areas, including marketing, IT, G&A and logistics, will account for the remaining 20 percent. These synergy estimates are not based on any plant closures resulting from the transaction. It is projected that the estimated synergies will be net cash flow positive from year 1 and that approximately 80 percent of the synergies will be achieved by year 4. The total one-time cost of achieving the synergies is estimated at €2.8 billion.
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. With an already strong global R&D footprint, the combined entity will have a robust platform to foster innovation and further drive development of transformational capabilities in new energy vehicles, sustainable mobility, autonomous driving and connectivity.
The merged entity will benefit from an efficient governance structure designed to promote effective performance, with a Board comprised of 11 members, the majority of whom will be independent6. Five Board members will be nominated by FCA and its reference shareholder (including John Elkann as Chairman) and five will be nominated by Groupe PSA and its reference shareholders (including the Senior Non-Executive Director and the Vice Chairman). At closing the Board will include two members representing FCA and Groupe PSA employees7. Carlos Tavares will be Chief Executive Officer for an initial term of five years and will also be a member of the Board.
Carlos Tavares, Mike Manley and their executive teams have a strong track record in successfully turning around companies and combining OEMs with diverse cultures. This experience will support the speed of execution of the merger, underpinned by the companies’ strong recent performances and already robust balance sheets. The merged entity will maneuver with speed and efficiency in an automotive industry undergoing rapid and fundamental changes.
The new group’s Dutch-domiciled parent company will be listed on Euronext (Paris), the Borsa Italiana (Milan) and the New York Stock Exchange and will benefit from its strong presence in France, Italy and the US.
Under the proposed by-laws of the combined company, no shareholder would have the power to exercise more than 30 percent of the votes cast at shareholders’ meetings. It is also foreseen that there will be no carryover of existing double voting rights but that new double voting rights will accrue after a three-year holding period after completion of the merger.
EXOR, Bpifrance, the Peugeot Family and Dongfeng have each irrevocably committed to vote in favor of the transaction at the shareholders’ meetings of FCA and Groupe PSA.
Before closing, FCA will distribute to its shareholders a special dividend of €5.5 billion while Groupe PSA will distribute to its shareholders its 46% stake in Faurecia. In addition, FCA will continue work on the separation of its holding in Comau which will be separated promptly following closing, for the benefit of the shareholders of the combined company. This will enable the combined group’s shareholders to equally share in the synergies and benefits that will flow from a merger while recognizing the significant value of both Groupe PSA and FCA’s assets and strengths in terms of market share and brand potential. Each company intends to distribute a €1.1 billion ordinary dividend in 2020 related to fiscal year 2019, subject to approval by each company’s Board of Directors and shareholders. At closing, Groupe PSA shareholders will receive 1.742 shares of the new combined company for each share of Groupe PSA, while FCA shareholders will have 1 share of the new combined company for each share of FCA.
Completion of the proposed combination is expected to take place in 12-15 months, subject to customary closing conditions, including approval by both companies’ shareholders at their respective Extraordinary General Meetings and the satisfaction of antitrust and other regulatory requirements.
Carlos Tavares, Chairman of the Managing Board of Groupe PSA, said: “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 and to provide our customers with world-class products, technology and services. I have every confidence that with their immense talent and their collaborative mindset, our teams will succeed in delivering maximized performance with vigor and enthusiasm.”
Mike Manley, Chief Executive Officer of FCA, added: “This is 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. Our people share a common trait – they see challenges as opportunities to be embraced and the path to making us better at what we do.”