Fiat Chrysler and Peugeot to Merge Into $46 Billion Automaker

PSA Group (OTCPK: PEUGF, OTCPK: PUGOY) and Fiat Chrysler Automobiles (NYSE: FCAU)  have agreed to merge to create the world’s fourth-biggest automaker, as the manufacturers prepare to shoulder the costly investments in new technologies transforming the industry.

This is the biggest auto merger since Daimler’s ill-fated purchase of Chrysler in 1998. The two carmakers will each own half of the enlarged business. The new company, with estimated global sales of 8.7 million vehicles, will be run by PSA Chief Executive Officer, Carlos Tavares, with Fiat Chairman John Elkann holding the same role.

This merger would form a regional powerhouse to its  rival Germany’s Volkswagen AG and with a market value of about $47 billion, which is greater than that of Ford Motor Co. The deal is going to bring together two strong carmakers, the billionaire Agnelli clan of Italy, led by Elkann, and the Peugeots of France. According to Bloomberg, in an era when size is becoming ever more important, the deal will turn the two mid-sized carmakers into a global heavyweight, with a stable of popular brands and annual vehicle sales surpassing General Motors Co. The combination will give Peugeot-maker PSA a long-sought presence in North America and should help Fiat gain ground in developing low-emission technology, where it’s lagged rivals.

The carmakers have estimated that the transaction is expected to take as long as 15 months to materialize, pending approvals by shareholders of both companies and by regulators.

Currently, Tavares and Elkann are responding to growing pressure to pool resources for product development, manufacturing and purchasing in the face of trade wars and an expensive shift toward electric and self-driving technology. Travis spoke to reporters saying, “The challenges of our industry are really, really significant. The green deal, autonomous vehicles, connectivity and all those topics need significant resources, strengths, skills and expertise.” Elkan in a letter to staff said, “The technological revolution we are embracing requires a more innovative response than anything we have done before.” There are reports that the new company will still be heavily reliant on Europe’s slow and saturated auto market, and poorly positioned in China, the world’s largest country for car sales.

Both companies aim to extract 3.7 billion Euros annually from the deal, without closing any of their automobile plants. This figure is the same as that announced when the merger was disclosed.

Several challenges faced by both carmakers may increase and they include reviving Fiat's struggling European operations to meet tough rules on emissions that are set to take effect in the region from next year, as well as the green deal policy that demands a tougher clampdown on carbon. Tavares is expected to navigate the political crosscurrents in France, Italy and the U.S., where the automakers have deep national roots.

The merger of Fiat and PSA would make it the fourth-largest automaker in the world behind Volkswagen, Toyota and Renault-Nissan.

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