- The merger between Fiat Chrysler and PSA Group will create a $50 billion entity.
- The resulting entity will be the fourth-largest carmaker on earth.
- The French government, which owns a stake in PSA Group, has not raised any objections to the merger.
Shares of Fiat Chrysler Automobiles NV (NYSE: FCAU) surged by nearly 5% in premarket trading to ultimately finish the day up 2.2%. This occurred after reports emerged that the U.S. carmaker was planning to merge with PSA group, the French manufacturer of the Peugeot brand of vehicles.
Ahead of the opening bell, the price of Fiat Chrysler’s stock was up 4.87% at 7:12 AM EDT to hit $15.71 per share. It gave back some of those gains to end the trading session at $15.32.
Based on Wednesday’s closing price of $14.98, the stock is about 14% lower relative to its 2019 high of $17.46 recorded in February.
Respective boards approve the merger
News of the planned merger had broken earlier, with PSA Group’s board being the first to give its approval. The board of Fiat Chrysler gave the green light early Thursday. The proposed merger will bring the two auto manufacturers under a parent company that will be domiciled in the Netherlands.
The 50/50 merger will create the fourth-biggest carmaker by unit sales in the world. Currently, the world’s top-three largest car manufacturers are Volkswagen, Toyota, and the Renault-Nissan-Mitsubishi Alliance. Toyota is the largest in terms of deliveries and market cap.
Some of the car brands that will now come under one roof following the merger include Jeep, Alfa Romeo, Dodge, Maserati, Citroen, Peugeot, Opel, and Vauxhall. The combined entity is projected to have a market cap of $50 billion.
Merged entity’s governance structure
The Dutch-domiciled parent company will have 11 members – five board members appointed by Fiat Chrysler and five appointed by PSA Group. The parent firm’s CEO will also be a board member.
Fiat Chrysler Chairman John Elkann will serve the parent firm in the same capacity initially. PSA Group’s chairman Carlos Tavares will take on the role of chief executive of the parent firm for a period of half a decade.
Earlier this year, Fiat Chrysler abandoned merger talks with French carmaker Renault. This was thwarted after the French government, which owns a 15% stake in Renault, pushed for the carmaker to continue its alliance with Nissan. The French government, which also owns a 12% stake in PSA Group, has given its blessings to the FCA/PSA merger through the Finance Minister Bruno Le Maire.
Fiat Chrysler and PSA merger to save over $4 billion
The merger is projected to realize over $4 billion in run-rate synergies. No plants are expected to be closed for the foreseeable future. The merger is estimated to achieve combined annual revenues amounting to $189.8 billion and a recurring operating profit of more than $12.3 billion based on their 2018 results. They would also achieve combined unit sales of 8.7 million.
Value accretion resulting from the merger would amount to approximately $4.1 billion:
“[This will be] derived principally from a more efficient allocation of resources for large-scale investments in vehicle platforms, powertrain and technology and from the enhanced purchasing capability inherent in the combined group’s new scale.”
The synergies are expected to be achieved after four years. A one-off cost of $3.13 billion will be incurred to realize the synergies.