Fiat, Peugeot merge at £38bn deal to provide innovative, clean, sustainable mobility solutions

18 / 12 / 2019

By Marwa Nassar - -

Fiat Chrysler Automobiles (FCA) and Peugeot S.A. (PSA) signed a £38 bn deal to establish a 50/50 combined company that will be particularly well placed to provide innovative, clean and sustainable mobility solutions, both in a rapidly urbanizing environment and in rural areas around the world.

According to a press release by FCA, the new company will be the 4th largest global automotive OEM by volume and 3rd largest by revenue.

The combined company will have annual unit sales of 8.7 million vehicles, with revenues of nearly €170 billion, recurring operating profit of over €11 billion and an operating profit margin of 6.6%,all on a simple aggregated basis of 2018 results.

The new Group will have much greater geographic balance with 46% of revenues derived from Europe and 43% from North America, based on aggregated 2018 figures of each company. The combination will bring the opportunity for the new company to reshape the strategy in other regions.

The technology, product and platform-related savings are expected to account for approximately 40% of the total €3.7 billion in annual run-rate synergies, while purchasing -benefiting principally from scale and best price alignment – will represent a further estimated 40%of the synergies. Other areas, including marketing, IT, G&A and logistics, will account for the remaining 20%. These synergy estimates are not based on any plant closures resulting from the transaction.

It is projected that the estimated synergies will be net cash flow positive from year 1 and that approximately 80% of the synergies will be achieved by year 4. The total one-time cost of achieving the synergies is estimated at €2.8 billion.Those synergies will enable the combined business to invest significantly in the technologies and services that will shape mobility in the future while meeting the challenging global CO2 regulatory requirements. With an already strong global R&D footprint, the combined entity will have a robust platform to foster innovation and further drive development of transformational capabilities in new energy vehicles, sustainable mobility, autonomous driving and connectivity.

The merged entity will benefit from an efficient governance structure designed to promote effective performance, with a Board comprised of 11 members, the majority of whom will be in dependent. Five Board members will be nominated by FCA and its reference shareholder(including John Elkann as Chairman) and five will be nominated by Groupe PSA and its reference shareholders (including the Senior Non-Executive Director and the Vice Chairman). At closing the Board will include two members representing FCA and Groupe PSA employees . Carlos Tavares will be Chief Executive Officer for an initial term of five years and will also be a member of the Board.

Completion of the proposed combination is expected to take place in 12-15 months, subject to customary closing conditions, including approval by both companies’ shareholders at their respective Extraordinary General Meetings and the satisfaction of antitrust and other regulatory requirements.

Carlos Tavares, Chairman of the Managing Board of Groupe PSA, said: “Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility and to provide our customers with world-class products, technology and services. I have every confidence that with their immense talent and their collaborative mindset, our teams will succeed in delivering maximized performance with vigor and enthusiasm.”

Mike Manley, Chief Executive Officer of FCA, added: “This is a union of two companies within credible brands and a skilled and dedicated workforce. Both have faced the toughest of times and have emerged as agile, smart, formidable competitors. Our people share a common trait -they see challenges as opportunities to be embraced and the path to making us better at what wedo.”