//By Raphaël BIAU//

On October 31st, Peugeot SA (PSA) and Fiat Chrysler (FCA) have announced a principle agreement based on a $48 billion merger of both groups. A binding agreement might be signed within a month.

Shareholders from each board would according to a joint statement own half of the combined operation and the headquarters of the new group would be in the Netherlands.

AFP/MARCO BERTORELLO and Joël SAGET

2019 has likely been the year of M&A attempts for the different automakers. FCA tried, a few months ago to bond with the Renault-Nissan group, but they didn’t work it out. PSA had already tried to bond with FCA at the beginning of 2019, but they had suffered failure. In spite of that, FCA and PSA are now on the march of becoming the world’s fourth-largest automaker.

This announcement has been well greeted by Bruno le Maire and Giuseppe Conte – who are respectively the French Minister of the Economy and Finance and the Chief of Italian government-. This is quite a good news when we remember that the French government had weighed a lot in the failure of the Renault-Nissan/Fiat merger. In a joint statement, PSA and FCA made quite an important announcement for the employees of both companies: there would be no firing.

This merger speaks volumes about the difficulty and the necessity for both groups to fill the current gap with General Motors or Volkswagen.

A marriage of convenience

Both companies have a major interest in merging with the other. On their own, neither of these companies has the skills to cope with current challenges: they can no longer turn a deaf ear to what is happening. The obligation of meeting with anti-pollution rules in the European Union or China, the coming of electric and hybrid cars and the new challenge of creating an autonomous car are too many challenges to face for these groups. Nonetheless, bonded, this new group could achieve to become a major actor of current challenges. $3,7 billion could be saved each year by this merger.

PSA has always been looking for developing its brand abroad. Thus, FCA offers an opportunity for PSA as it sells half of its production in the United States and Mexico.

It is common knowledge that Fiat Chrysler suffers a technological backwardness, mainly because FCA invests little money in R&D. Here comes PSA which invests a lot on R&D as it is the second biggest automaker investor.

It looks like this is the golden opportunity for each group to get its former glory back and to reach together to the Asian markets where currently both groups are reduced to nothing.

However, it will be interesting to see how this new group will manage to gather two different automaker cultures. For instance, when Fiat gives 60% of its benefits to the shareholders PSA only gives 25% of its.

Some figures:

410000, the number of employees of the future group

8,3 million, the combined number of cars sold (not so far from Volkswagen: 10 million cars sold)

$190 billion, the amount of both companies’ revenues

Sources:

https://www.liberation.fr/depeches/2019/10/31/psa-et-fiat-chrysler-en-route-vers-une-mega-fusion_1760865

http://www.leparisien.fr/economie/psa-fiat-chrysler-derriere-le-projet-de-fusion-un-mariage-de-raison-31-10-2019-8184222.php

https://www.lecho.be/les-marches/actu/general/quatrieme-meilleur-debut-d-annee-pour-les-fusions-et-acquisitions/10177769.html?rc_source=echo&rc_medium=unknown&rc_content=article-list

https://edition.cnn.com/2019/10/31/business/fiat-chrysler-psa-group/index.html

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