Fiat Chrysler Automobiles NV and French carmaker PSA Group’s talks on a possible combination point to an intensifying push for global consolidation in an industry struggling with a downturn and expensive shift to electric cars.
Fiat and PSA confirmed Wednesday in separate statements they’re holding discussions aimed at creating one of the world’s leading auto groups. PSA shares rose the most in just over a year, while Fiat jumped as much as 11 per cent.
The companies didn’t give details on what any deal would look like. Under one recent proposal, the maker of Peugeot brand cars would be the acquiring entity and the French side would have an advantage in terms of board seats, according to people familiar with the matter. PSA’s board is holding an extraordinary meeting later Wednesday, said the people who asked not to be named because the information isn’t public.
A merger of Fiat Chrysler and PSA, the No. 2 for car sales in Europe, would create a regional powerhouse to rival Volkswagen AG, and have a stock-market value of about US$49 billion — comparable to Japan’s Honda Motor Co. The tie-up would also bring together two auto-making dynasties, the billionaire Agnelli clan in Italy and the Peugeot family of France.
The talks come several months after Fiat Chrysler and PSA, led by Chief Executive Officer Carlos Tavares, explored a partnership on pooling investment to build cars in Europe, and following the collapse of negotiations between Fiat Chrysler and French competitor Renault SA in June.
Under one recent proposal, Fiat and PSA have discussed making Tavares CEO of the combined company while John Elkann, scion of the Italian-American automaker’s founding Agnelli family, would be chairman, one person said.
The French government would play a key role in any deal because France is one of the biggest owners of PSA, whose brands include Peugeot, Opel and Citroen.
Analysts greeted word of a possible deal warmly. “In our view the combination of FCA and PSA has more logic than the previously attempted FCA-RNO deal and has a far greater chance of success,” Max Warburton, a Bernstein analyst, wrote in a note to clients.
Fiat shares rose 8.5 per cent to 12.75 euros at 9:17 a.m. in Milan while PSA stock was up 7.7% to 26.84 euros in Paris.
Pressure on Automakers
Automakers face tremendous pressure to combine forces and share costs from platform development to manufacturing and purchasing as they battle through trade wars, a global slowdown and an expensive shift toward electrification and autonomous driving. Volkswagen in July said it will work with Ford Motor Co. on electric and self-driving car technology, while Toyota Motor Corp. is strengthening ties with partners such as Subaru Corp. and China’s BYD Co.
In Europe, PSA and Fiat Chrysler face the additional burden of new emissions regulations that will force the industry to meet stringent fleet requirements next year.
“If completed, we believe this should ignite more rational industry behavior around allocation of capital ,and this particular merger makes materially more sense than a potential FCA-Renault merger,” said Arndt Ellinghorst, an Evercore analyst. He said it’s an opportunity to achieve “gross synergies” above 7 billion euros ($7.8 billion) by 2023 due to overlapping businesses in Europe, Latin America and China.
The companies’ Chinese businesses have been trailing competition and it’s unlikely that a merger would quickly reignite their revenue growth in the world’s biggest car market. China’s Dongfeng Motor Corp., which holds about 12% of PSA, could also have a say on the deal.
PSA has been floated as a logical merger partner with Fiat, because of their complementary product and geographic fit, and the two sides talked about a possible partnership earlier this year. However, the Italian-American carmaker instead pursued a deal with Renault. Those talks were called off in June amid opposition from the French government and a lack of support from Renault’s Japanese alliance partner Nissan Motor Co.
What Bloomberg Intelligence Says
Fiat Chrysler’s leaned-out figure offers North America volume and profit in the form of the Jeep and Ram brands, while Peugeot would bring Europe profitability to the marriage.
Kevin Tynan, Automobiles analyst
Fiat Chairman Elkann had walked away from the potential deal with Renault blaming “political conditions in France.” Fiat Chrysler signaled at the time that the French state would have to give up its sway over Renault for a resumption of talks, people with knowledge of the situation said at the time.
Tavares said earlier this year that Peugeot would be returning to the U.S., which the brand exited in 1991. Tavares said the brand will begin shipping vehicles to North America from Europe or China in 2026.
Fiat Chrysler is seen as a laggard in new technologies such as electrification and autonomy, which are expected to cost automakers billions of dollars over the next decade. The company has sought to secure its future with a larger partner for several years, dating back to late CEO Sergio Marchionne’s failed courtship of General Motors Co. After being rebuffed by GM in 2015, rumors of talks with other automakers have swirled with varying intensity.
--With assistance from Gabrielle Coppola, Daniele Lepido, Liana Baker, Siddharth Philip, Tian Ying, Anurag Kotoky and David Welch.
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