Fiat Chrysler Automobiles NV (NYSE:FCAU) has confirmed plans for a 50-50 merger with Peugeot’s owner PSA Group, a consolidation of the auto sector as it faces the impact of a global slowdown and the challenges of shifting to electric vehicles.
In a statement, the two companies said the combined business will become the world’s fourth-largest carmaker in terms of unit sales, at 8.7mln vehicles, with combined revenues of €170bn and recurring operating profit of €11bn.
They noted that the merger will cost €2.8bn and is expected to reach 80% completion over four years, with shareholders owning 50% of the equity of the new group.
The transaction is estimated to bring in an additional value of €3.7bn in annual run-rates, mostly due to increased efficiency in large-scale investments and enhanced acquisition ability, excluding potential plant closures, the firm's added.
PSA’s chief executive Carlos Tavares will keep his post in the new group, with Fiat Chrysler’s boss John Elkann stepping in as chairman.
The agreement follows Fiat Chrysler’s attempt to merge with another French carmaker, Renault which failed earlier this year after the Italo-American group withdrew from the deal citing unfavourable political conditions in France as the government - Renault’s largest shareholder with 15% stakes - did not support the deal.
Considering that the French government also holds a major stake in Peugeot - at 14% - analysts fear the new deal may encounter political obstacles as well.