The Fiat-PSA agreement loses ambition but also uncertainty | Opinion

The marriageable couple Fiat Chrysler Automobiles (FCA) and Peugeot maker PSA can finally walk down the aisle. The Jeep maker has agreed to cut a huge dividend linked to its planned merger by nearly half, but its shareholders will get more savings and shares in parts maker Faurecia. The change will boost the balance of the future Stellantis group and will eliminate the anguish that persists in the operation.

Moderation in the Covid-19 era makes sense on multiple levels. By reducing an originally planned 5.5 billion payment to € 2.9 billion, Fiat admits the inevitable: that it needs to preserve cash in the pandemic.

It also eliminates the threat of a challenge from PSA shareholders to the terms of the original deal. Fiat has been burning cash in the crisis. Paying himself a huge bonus would also have been odd after he obtained a € 6.3 billion loan backed by the Italian state, the biggest help of the crisis for a European carmaker.

Fiat shareholders are being compensated by other means. Under the terms of the revised deal revealed Monday, PSA will distribute its 46% stake in auto parts maker Faurecia to all Stellantis shareholders, rather than just PSA’s. This means that FCA investors will get 50% of that stake of around 2,500 million euros of current market value, or almost 1,300 million, in addition to the 2,900 million euros of cash dividend.

Even adding Faurecia shares, Fiat investors appear to be € 1.3 billion short of the original dividend plan. But they can get an optional dividend of 500 million later. And they have been promised that their share of the annual savings will be worth at least 5 billion euros, more than originally estimated at 3.7 billion euros and that it will amount to about 35 billion once they are taxed and capitalized.

Tuesday’s rally in Fiat shares reflects in part the fact that its shareholders could have expected a stronger blow to send the ball of the deal flying over the net. But it is also driven by much greater confidence in its completion.

At current market prices, the merger spread between the two stocks has dropped below 4% from almost 12% prior to the announcement of the deal. That’s the value of removing a large dose of distress.

The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation, of Carlos Gómez Down, it is the responsibility of Five days

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FCA-PSA merger, agreement on maxi-dividend and assets revised

The coupon drops from 5.5 to 2.9 billion. Faurecia (components) remains within Stellantis and is distributed to the two partners. The Stock Exchange rewards the title of the Italian-American group

FCA and PSA review part of the agreement for the creation of the fourth world automotive group, Stellantis, resulting from the equal merger of the two partners. In particular, Fiat Chrysler and Peugeot modify the part concerning the maxi dividend of 5.5 billion that was provided for in the preliminary agreement, the so-called combination agreement, signed last December 17th. The reason for the novelty, according to what we read in the joint note of the two auto groups, comes from the analysis of the impact of the coronavirus pandemic on the automotive industry in terms of liquidity.

what changes

The new agreement provides for a dividend of 2.9 billion to be distributed to FCA shareholders (instead of the 5.5 initially planned, as mentioned). A second big news concerns Faurecia, a component group currently controlled by Psa which holds 46% and whose capitalization is 5.867 billion. For Faurecia there was the project of spin off, that is the actions necessary to make an independent company, for the subsequent sale. In reality, the first version of the agreement provided for the distribution of its stake to PSA shareholders. Now, however, Faurecia will remain under the control of Stellantis and will be distributed, 23% each, to FCA and PSA shareholders. In addition, the payment of a dividend of 500 million euros to the shareholders of each company or, alternatively, the distribution of one billion to all the shareholders of Stellantis will be assessed before the merger is concluded. closing happened. However, the decision on the extra dividend will be made by evaluating the market trend and the prospects.

Times

In the joint note from Psa and FCA, in addition to confirming all the other aspects contained in the combination agreement, the two companies reaffirm the timing of the merger which will be completed by the first quarter of 2021. Instead, the estimated annual savings that will be obtained with synergies increase from 3.7 billion to over five. However, there is an independent variable that should not be underestimated. The European Antitrust has extended the deadline for closing the investigation concerning competition on commercial vehicles up to 3.5 tons until 13 November; Brussels wants to understand if the new group could have a dominant position on the van market, in contrast with competition rules.

FCA and Psa well on the stock exchange

“With this new decisive step, we are approaching our goal overall in the best possible conditions,” said Carlos Tavares, CEO of Psa and CEO of Stellantis (John Elkann will be president). “Today’s announcement – said Mike Manley, CEO of FCA – is a further strong signal of the common determination to ensure that Stellantis has all the resources it needs”. The announcement of the change in the agreement is rewarding in the FCA stock exchange whose stock, on Tuesday at lunchtime in Piazza Affari, marks a rise of 10.2%, while Psa on the Paris market gains 2.8%. Financial analysts are looking with interest at the possibility of an additional dividend of 500 million per shareholderclosing, or a billion post-merger.

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PSA and FCA change the terms of the merger. The reason is coronavirus

Car manufacturers FCA and PSA continue to count on their merger. However, the coronavirus pandemic forced both partners to change the fusion conditions.

French carmaker PSA and Italian-American Fiat Chrysler (FCA) have modified the terms of their planned merger. The changes aim to maintain more cash and reduce costs more during the ongoing coronavirus crisis. The companies announced this in today’s statement. The merged company will be called Stellantis and is set to be the fourth largest carmaker in the world after Volkswagen, Toyota and Renault-Nissan.

The FCA will reduce the cash part of the special dividend of 5.5 billion euros, which is to be received by the company’s shareholders under the terms of the agreement signed last year, to 2.9 billion euros (CZK 77.3 billion). PSA will then delay the planned distribution of its 46 percent stake in component manufacturer Faurecia to shareholders in the new group. Faurecia’s market capitalization now stands at 5.9 billion euros.

An informed source told Reuters that the aim of these changes is to strengthen the balance sheet structure of both companies after the coronavirus crisis and to ensure that the planned merger is completed as soon as possible.

Analysts warn that paying such high cash to FCA shareholders, led by controlling investor EXOR, the holding company of the Italian Agnelli family, could weaken the new carmaker’s finances as the automotive industry pays a high price for this year’s coronavirus epidemic.

FCA and PSA now expect annual savings from their merger of more than five billion euros instead of the original more than 3.7 billion euros. Both carmakers have also confirmed that they expect the entire merger process to be completed in the first quarter of next year.

The companies agreed on a merger worth USD 50 billion (CZK 1.2 trillion) in December 2019. The agreement brings together the brands of the French group Peugeot, Citroën, Opel and DS with the brands Fiat, Chrysler, Jeep, Dodge, Maserati, Alfa Romeo and Ram . The combined sales of the merged group should reach approximately 8.7 million cars and sales of almost 170 billion euros.

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DS, Alfa Romeo and Maserati could expand after FCA and PSA merger

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The merger of the automotive conglomerates PSA and FCA, presented last July as Stellantis, will result in a very promising project that even attracted the attention of external brands.

DS, Alfa Romero and Maserati they laid eyes on Stellantis, the great bet of the PSA groups of France and FCA of Italy. Starting from the objectives that they now have as a joint brand, other manufacturers could join the conglomerate in order to carry out their own projects.

Based on the plans of the Franco-Italian merger on the focus on the production of mechanical architectures and systems global, easy to adapt and compete in different markets, would be incentivizing other brands to link, with the acquisition of their products.

Just as it will contribute elements, Stellantis will also take others. For example, they talk about the use they will give to the platform George that until now had only been applied to Giulia and Stelvio by Alfa Romero. Maserati would also take this same architecture for your new SUV.

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More plans included

Knowing now that Stellantis’ work will be based on granting platforms for future models of all the brands mentioned here, there are already some official announcements. One is the use of CMP architecture for segment B models of PSA and the Italian firms.

This in turn indicates that the project also involves the manufacture of the e-CMP platform for electric vehicles, based on PSA’s EMP2. The matter does not stop here, and in 2023 they will release another basis for ‘zero emissions’ called e-VMP.

On the other hand DS will be supported both in Alfa Romeo and Maserati to take more solid steps in the segment of the sports cars.

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The first financial estimates that the Stellantis group initially raised were close to the 170,000 million euros in terms of annual income. Earnings during the same term of 11 billion euros and an operating margin of 6.6%.

Read also: Stellantis: The new group born from the union of FCA and PSA.


Jessica Paola Vera García.

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