PSA Group and Fiat Chrysler confirm merger plans

The PSA Group and Fiat Chrysler Automobiles have confirmed plans to merge on a 50/50 basis, firming up yesterday’s news that the two companies were in discussions regarding such a move.

Both firms said today that the discussions would be finalised “in the coming weeks” to reach a binding Memorandum of Understanding, which will create one of the world's largest automotive groups.

They added that the “combined entity would leverage its strong global R&D footprint and ecosystem to foster innovation and meet these challenges with speed and capital efficiency”.

The likely merger will create a car giant worth around £40 billion and encompass some of the world’s biggest car brands. FCA owns Fiat, Jeep, Alfa Romeo, Maserati, Ram, Lancia and Chrysler, while the PSA stable includes Peugeot, Citroën, DS and Vauxhall-Opel.

The deal would create the fourth largest car manufacturer globally in terms of annual sales, at 8.7m vehicles, behind Volkswagen Group, Toyota and the Renault-Nissan-Mitsubishi alliance, as well as revenues of €170bn (Rs 1,333,650 crore) and recurring operating profit of over €11bn (Rs 86,295).

Today’s announcement also stated there are estimated synergies of €3.7bn (Rs 2,902 crore) synergies annually “without any plant closures resulting from the transaction”. This would come from a more efficient allocation of resources for major investments in  vehicle platforms, powertrain and technology as well as purchasing power. The two firms projected that 80 percent of the synergies would be achieved after four years.

The shareholders of FCA and PSA will each take a 50 percent stake in a new Dutch parent company, under the proposals, with the governance structure balanced between the two firms. There would be 11 board members, with five nominated by FCA and five by PSA. Current FCA chairman John Elkann will become the chairman of the new firm, while PSA group boss Carlos Tavares would become the CEO, standing on an initial five-year term.

PSA Group chief Carlos Tavares is famous for cutting costs - for example, turning Vauxhall into profit in under 12 months of taking ownership - and PSA and FCA claimed the merger would make “among the highest margins in the markets where it would operate,” based on FCA’s strength in the Americas and PSA Group’s in Europe.

As well as broadening the global reach of both firms, the merger will also mean the new entity will comprehensively cover all areas of the market including luxury, premium, volume, trucks and light commercial vehicles.

PSA Group boss Carlos Tavares said: “This convergence brings significant value to all the stakeholders and opens a bright future for the combined entity. I’m pleased with the work already done with Mike and will be very happy to work with him to build a great company together.”

FCA chief Mike Manley said: "I'm delighted by the opportunity to work with Carlos and his team on this potentially industry-changing combination. We have a long history of successful cooperation with Groupe PSA and I am convinced that together with our great people we can create a world class global mobility company."

FCA has already been in the news this year regarding mergers. It held extended talks with Group Renault over a possible partnership but those talks broke down after the two firms could not reach an agreement, thought to be hampered by Renault’s alliance with Nissan and the French government.

Tavares led the purchase of Vauxhall-Opel and has been keen to expand the firm for some time, either through partnership or further acquisition. PSA is understood to have previously looked at buying Jaguar Land Rover.