Fiat Chrysler agrees to merge with Peugeot Citroen

Fiat Chrysler agrees to merge with Peugeot Citroen

Many hurdles need to be cleared before such a deal could close.

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November 4, 2019

Cleveland, Ohio – Shortly after announcing that the two companies were in talks last week, Fiat Chrysler Automobiles (FCA) and Peugeot Citroen (PSA Group) have agreed to merge, however several technical issues could derail the 50/50 partnership.

The proposed deal would put PSA Group CEO Carlos Tavares in charge of the joint company. A former Renault-Nissan executive, Tavares joined PSA in 2014 and masterminded the company’s 2017 purchase of General Motors’ Germany-based Opel division.

The resulting company would be the world’s fourth largest automaker. PSA’s strong Asian and European divisions would join FCA’s strengths in North America.

“This convergence brings significant value to all the stakeholders and opens a bright future for the combined entity,” Tavares said.

Ownership will be a tough issue to work out, however.

The Agnelli family, descendants of Fiat’s founders, own the larger block of FCA stock, controlling about 29% of shares. PSA, on the other hand, is a socialist-capitalist hybrid with 20% of shares held by various French national banks and agencies, 12% owned by China’s Dongfeng Motor (its largest partner in Asia), and 12% owned by the Peugeot family.

Founded by Mao Zedong, Dongfeng’s ownership by China’s government would be an especially difficult issue for U.S. securities regulators.

Officials with the company’s say protected share classes that gave Peugeot and Agnelli family members extra votes would go away. Shareholders for both companies would be prevented from selling shares for several years, although the Peugeot family would be allowed to boost its ownership of the combined company by buying out some French government shares.

PSA would distribute its shares in supplier Faurecia to its shareholders, effectively divesting itself of that business. FCA would take similar steps to distributed its robotics subsidiary Comau to its shareholders.

The deal is not likely to have a huge impact on FCA’s North American business in the short term. PSA’s expertise is in smaller cars with much of its research going into hybrids and electric vehicles (EV). FCA was the first of the major automakers in the U.S. to dump its small car portfolio as drivers increasingly selected crossover and SUVs.

The companies hope to have a formal memorandum of understanding to proceed with the deal within the next few weeks. Regulators in Asia, Europe, and North America would then have to approve the deal, a process that could take months. Neither FCA nor PSA shared details on when they hope to finalize a merger.

About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 19 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.

rschoenberger@gie.net